You are analyzing two companies that manufacture electronic toys-Like Games Inc.

Question

You are analyzing two companies that manufacture electronic toys-Like Games Inc. and Our Play Inc. Like Games was launched eight years ago, whereas Our Play is a relatively new company that has been in operation for only the past two years. However, both companies have an equal market share with sales of $300,000 each. You've collected company data to compare Like Games and Our Play. Last year, the average sales for all industry competitors was $765,000. As an analyst, you want to make comments on the expected performance of these two companies in the coming year. You've collected data from the companies' financial statements. This information is listed as follows: Data Collected (in dollars) Accounts receivable Net fixed assets Total assets Like Games 8,100 165,000 285,000 Our Play 11,700 240,000 375,000 Industry Average 11,550 650,250 703,800 Using this information, complete the following statements to include in your analysis 1. Our Play has time to collect cash from its customers than it takes Like Games days of sales tied up in receivables, which is much than the industry average. It takes Our Play 2. Like Games's fixed assets turnover ratio is acquisition cost of its fixed assets is recorded at historic values when the company bought its assets and has been depreciated since then Assuming that fixed assets prices (not book values) rose over the past six years due to inflation, Our Play paid a assets than that of Our Play. This is because Like Games was formed eight years ago, so the amount for its fixed 3. The average total assets turnover in the electronic toys industry is 1.09%, which means that $1.09 of sales is being generated with every dollar of investment in assets. A are total assets turnover ratio indicates greater efficiency. Both companies' total assets turnover ratios than the industry average

Explanation / Answer

Like Games Our play Industry Average Sales 300000 300000 765000 Accounts receivable 8100 11700 11550 Days of sales tied up in Accounts receivable 9.86 14.24 5.51 1. Our play has 14.24 days of sales tied up in Accounts receivable, which is much higher than industry average. It takes Our Play more time to collect cash from its customers than it takes Like Games. Like Games Our play Industry Average Sales 300000 300000 765000 Net Fixed Assets 165000 240000 650250 Fixed Assets turnover ratio 1.82 1.25 1.18 2. Like Games Fixed assets turnover ratio is higher than that of Our Play. This is because Like Games was formed eight years ago, so the acquisition cost of its fixed assets is recorded at historic values when the company bought its assets and had been depreciated since then. Assuming that fixed assets prices (not book values) rose over the past six years due to inflation, Our play paid a higher amount for it fixed assets. Like Games Our play Industry Average Sales 300000 300000 765000 Total Assets 285000 375000 703800 Fixed Assets turnover ratio 1.05 0.80 1.09 3. The average total assets turnover in the electronic toy industry is 1.09x of sales is being generated with every dollar of investment in assets. A higher total assets turnover ratio indicates greater efficiency. Both companies total assets turnover ratios are lower than the industry average.

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