Would managers, bankers, and stockholders have an equal interest in the company\

Question

Would managers, bankers, and stockholders have an equal interest in the company's liquidity ratio and why?
How does the company's utilization of assets stack up against other firms in the industry?
Balance Sheets TABLE IC 4. 2015E 2014 2013 Assets Cash Accounts receivable Inventories 7,282 632,160 1.287 360 $1,926,802 1.202,950 $ 57,600 351,200 85,63 878000 71 1,716,480 $2,680,112 1,197,160 Total current assets Gross fixed assets Less accumulated depreciation $1,124,000 491,000 146,200 S 344800 120 Net fxed assets 939,790 Total assets 3,497,152 Liabilities and Equity Accounts payable Accruals Notes payable 145,600 136,000 5 436,800 5 524,16 489,600 Total current labilities Long-term debt Common stock Retained earnings $1,144,800 1,721,176 $1,952,352 $1,650,568 723,432 460,000 481,600 323,432 460,000 203,768 663,768 231,176 Total equity ° Total liabilities and equity 4971 Note: E indicates estimated. The 2015 data are forecasts Income Statements TABLE IC4.2 2015E 2014 2013 53,432.000 Sales Cost of goods sold Other expenses Total operating costs excluding depreciation and 57035,600 5,875,992 550 519,988 047,988 116,960 $6,425,992 S 609,608 s 13,988) 209,328 18,900 s 190,428 ($ 13,988) EBITDA Depreciation & amortization 5 492,648 ($ 130,948) Interest expense 422,640 IS 266,960) $ 146,600 EBT (1" 106,784 Taxes (40%) Net income 87,960 EPS DPS Book value per share Stock price Shares outstanding Tax rate Lease payments $1014 $0.220 7809 12.17 250,000 S 1.602) 0.110 4.926 $ 225 100,000 4000% 0.880 0.220 6638 $ 8.50 100,000 40.00% oSinking fund payments Note: E indicates estimated. The 2015 data are forecasts The firm had sufficient taxable income in 2012 and 2013 to obtain its full tax e 13 to obtain its full tax refund in 2014.

Explanation / Answer

Answer:

CURRENT RATIO15 = CURRENT ASSETS/CURRENT LIABILITIES

= $2,680,112/$1,144,800 = 2.341

QUICK RATIO15 = (CURRENT ASSETS – INVENTORY)/CURRENT LIABILITIES

= ($2,680,112 - $1,716,480)/$1,144,800 = 0.842

THE COMPANY’S CURRENT AND QUICK RATIOS ARE equal RELATIVE TO ITS 2013 CURRENT AND QUICK RATIOS; HOWEVER, THEY HAVE IMPROVED FROM THEIR 2014 LEVELS. BOTH RATIOS ARE WELL BELOW THE INDUSTRY AVERAGE, HOWEVER.

Answer: INVENTORY TURNOVER15 = SALES/INVENTORY

= $7,035,600/$1,716,480 = 4.10´.

DSO15 = RECEIVABLES/(SALES/360)

     = $878,000/($7,035,600/360) = 44.9 DAYS.

FIXED ASSETS TURNOVER15 = SALES/NET FIXED ASSETS

                        = $7,035,600/$817,040 = 8.61´.

TOTAL ASSETS TURNOVER15 = SALES/TOTAL ASSETS

                        = $7,035,600/$3,497,152 = 2.01´.

THE FIRM’S INVENTORY TURNOVER RATIO HAS BEEN STEADILY DECLINING, WHILE ITS DAYS SALES OUTSTANDING HAS BEEN STEADILY INCREASING. WHILE THE FIRM’S FIXED ASSETS TURNOVER RATIO IS BELOW ITS 2013 LEVEL, IT IS ABOVE THE 2014 LEVEL. THE FIRM’S TOTAL ASSETS TURNOVER RATIO IS BELOW ITS 2000 LEVEL AND JUST SLIGHTLY BELOW ITS 2014 LEVEL.

THE FIRM’S INVENTORY TURNOVER AND TOTAL ASSETS TURNOVER ARE BELOW THE INDUSTRY AVERAGE. THE FIRM’S DAYS SALES OUTSTANDING IS ABOVE THE INDUSTRY AVERAGE (WHICH IS BAD); HOWEVER, THE FIRM’S FIXED ASSETS TURNOVER IS ABOVE THE INDUSTRY AVERAGE. (THIS MIGHT BE DUE TO THE FACT THAT COMPUTRON IS AN OLDER FIRM THAN MOST OTHER FIRMS IN THE INDUSTRY, IN WHICH CASE, ITS FIXED ASSETS ARE OLDER AND THUS HAVE BEEN DEPRECIATED MORE, OR THAT COMPUTRON’S COST OF FIXED ASSETS WERE LOWER THAN MOST FIRMS IN THE INDUSTRY.) THE FIRM’S OPERATING CAPITAL REQUIREMENT RATIO IS HIGHER THAN THE INDUSTRY AVERAGE, INDICATING THAT COMPUTRON REQUIRES MORE DOLLARS OF CAPITAL TO GENERATE A DOLLAR OF SALES THAN THE AVERAGE FIRM IN THE INDUSTRY.

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