More quick assets very liquid assets to pay their

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went up, more liquidity less risk and it is good. More quick assets, very liquid assets to pay their current liabilities. AP Turnover went down, it means they are paying slower to their suppliers. Hence, they can be taking advantage of interest free financing. By looking at AP Turn over and Current + quick ratios we can say that TI has good cash liquidity so slowing AP turnover is good until and unless company have no cash or liquidity. But in our TI case, no need to get nervous & just TI is delaying payment intentionally Cash Conversion Cycle (CCC) slightly down, more liquidity, fewer days in the operating cycle and it helped financing with something besides interest free AP. Inventory – sell slower, Increase CCC AR – collect faster, shrink CCC AP – Paying slower, decrease CCC 9
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Riffe – ACCT 6201 – Session 7 – Fall 2018 Cross-sectional Analysis TI Compared to Qualcomm and ADI in 2017 Current ratio – Quick ratio – AP Turnover – Cash Conversion Cycle – Inventory - AR - AP - Solvency – ability to meet obligations and cover interest costs Liabilities-to-equity ratio = Liabilities Equity The higher the ratio, the greater the risk because a larger percentage of financing is from liabilities instead of equity. Times Interest Earned = Income Before Interest Taxes Interest Expense A higher the ratio indicates less risk because the firm has more profitability to cover interest costs. Trend Analysis 2016 to 2017 Liabilities -to-equity – WENT UP, THEY HAVE MORE LIABILITY FINANCING RELATIVE TO EQUITY, HENCE MORE RISK Times interest earned – MORE PROFIABILITY RELATIVE TO INTEREST EXPENSE, HENCE LESS RISK Cross-sectional Analysis TI Compared to Qualcomm and ADI in 2017 10
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Riffe – ACCT 6201 – Session 7 – Fall 2018 Liabilities-to-equity – Times interest earned – Ratio analysis is about telling a story… Summarize the trend for TI in terms of profitability, productivity, liquidity and solvency. Summarize how TI compares to their competitors in terms of profitability, productivity, liquidity and solvency. In 2017, they have improved profitability and productivity driven by effective cost control and strong revenue growth. The only negative sign for productivity is inventory turn is decreased. Liquidity has improved and even though they are adding more liability financing which adds to the risk, they have plenty of profitability to cover their interest expense. So, they have very low solvency risk. Notes Problem Costco and Nordstroms For the Costco Financial Statements used in 4-45, calculate the cash conversion cycle for 2016. Exclude membership fees from Sales revenue and include pre-opening costs in CGS to make Costco more comparable to Nordstroms. For Nordstroms Financial Statements used in 4-50 calculate the cash conversion cycle for 2016. Exclude credit card revenues from Sales revenue to make Nordstroms to make it more comparable to Costco. Compare the cash conversion cycles for the two companies and comment on the differences. 11
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  • Fall '09
  • Robbins
  • Balance Sheet, Generally Accepted Accounting Principles, TI

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