COMPARATIVE ANALYSIS PROBLEM: Company A vs. Company B BBS11.2 The following data
ID: 2411814 • Letter: C
Question
COMPARATIVE ANALYSIS PROBLEM: Company A vs. Company B
BBS11.2 The following data have been extracted from the financial statements of two competitors in the retail industry:
Company A
Company B
Required
a) Based on the information in these financial statements, calculate the following ratios for each entity for 2017:
1.Current cash debt coverage.
2.Cash return on sales ratio.
3.Cash debt coverage.
b) What conclusions concerning the management of cash can be drawn from these data?
2017$’000 2016
$’000 Sales revenue 505 754 461 205 Net cash provided by operations 113 393 101 126 Current liabilities 112 907 130 769 Total liabilities 124 497 149 139
Explanation / Answer
Answer $ '000 1 Current cash debt coverage ratio = Net cash provided by operating activities / Average Current Liabilities Company A 113393 / 121838 131615 / 175739 0.9307 0.7489 where Average current liabilities = Current Liability at beginning and at the end of the year / 2 Company A Company B Current Liabilities at beginning= 130769 Current Liabilities at beginning= 162582 Current Liabilities at Closing = 112907 Current Liabilities at Closing =188896 Total Current Liabilities = 243676 Total Current Liabilities = 351478 Average Current Liabilities = 121838 Average Current Liabilities = 175739 2 Cash return on sales ratio Net cash provided by operating activities / Sales Revenue Company A Company B 113393 / 505754 131615 / 744285 0.2242 0.1768 3 Cash Debt Coverage Ratio Net cash provided by operating activities / Total Liabilities Company A Company B 113393 /124497 131615 / 387638 0.9108 0.3395 b. Conclusion i Current cash debt ration indicate not good position of cash.Generally 1:1 or more ratio is cosidered better . So it is suggested to increase its cash from operation Cash return on sale is also least since it is suggested to increase it cash from operation. cash debt ration indicate not good position of cash.Generally 1:1 or more ratio is considered better. So it is suggested to increase its cash from operation. Please feel free to ask if anything about above solution in comment section of the question.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.