Using Mergent Online, I have pulled financial information from two companies in
ID: 2479521 • Letter: U
Question
Using Mergent Online, I have pulled financial information from two companies in the "Soap & Other Detergent" industry. Using the information below, calculate the following information for the most recent reported year:
(a) Receivables turnover
(b) Accounts payable turnover
(c) Current ratio
(d) Working capital
Provide a brief comparison of the two companies based on your analysis.
Company A Company B (in thousands) (in millions) 12/31/2014 12/31/2013 6/30/2015 6/30/2014 A/R 324,800 331,000 4,861 6,386 Current assets 1,032,500 1,115,800 29,646 31,617 A/P 284,100 256,700 8,257 8,461 Current liabilities 905,300 651,200 29,790 33,726 Net sales 3,297,600 3,194,300 76,279 83,062 COGS 1,844,700 1,756,300 38,876 42,460Explanation / Answer
A) Receivable Turnover can be calculated using the formula For Company A = Net Credit sales / Average accounts receivables = 3297600/327900 10 Times We are given accounts receivables as on 12/31/2013 = 331000 Thousands on 12/31/2014= 324800 Thousands Average accounts receivables can be calculated averaging accounts receivables balance for two period = ( opening +closing receivables) / 2 = (331000 + 324800) / 2 327900 We are given Net credit sales as 3297600 for year 2014 (assuming all sales are on credit) For Company B = Net Credit sales / Average accounts receivables = 76279/5624 14 Times We are given accounts receivables as on 6/30/2014 = 6386 Million on 6/30/2015 = 4861 Million Average accounts receivables can be calculated averaging accounts receivables balance for two period = ( opening +closing receivables) / 2 = (6386+4861) / 2 5624 We are given Net credit sales as 76279 for year 2014-2015 (assuming all sales are on credit) B) Accounts Payable turnover can be calculated using formula = Net Credit purchase / Average Accounts Payables or = COST of Goods sold / Average accounts payables Company A = 1844700/270400 6.82 Times we are given cost of goods sold for year 2014 as 1844700 assuming all on credit) Average accounts payable can be calculated by averaging accounts payable of two periods We are given accounts payable as on 12/31/2013 = 256700 Thousands on 12/31/2014= 284100 Thousands = ( opening + closing payable)/2 = (256700+284100)/2 270400 Company B = 38876/8359 4.65 Times we are given cost of goods sold for year 2014 -15 as 38876 Million assuming all on credit) Average accounts payable can be calculated by averaging accounts payable of two periods We are given accounts payable as on 6/30/2014 = 8461 Million on 6/30/2015 = 8257 Million = ( opening + closing payable)/2 = (8461+8257)/2 8359 c) Current Ratio can be calculated suing formula = Current assets / current liabilities Company A = 1032500/905300 1.14 Company B = 29646/29790 0.99 D) Working capital can be calculated as Current Assets - current liabilities Company A =1032500-905300 127200 Thousands Company B -144 Million Summarising Company A Company B Receivables Turnover 10 times 14 times Accounts Payable Turnover 6.82 times 4.65 times Current Ratio 1.14 0.99 Working Capital 127200 Thousand -144 Million
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