Please help explain what this question is asking, I\'m having trouble getting st
ID: 2537782 • Letter: P
Question
Please help explain what this question is asking, I'm having trouble getting started.
1. ELI LILLY -- Discuss the following ratios that are based on the financial statements of Eli Lilly, a major pharmaceutical company. Be specific – what kinds of performance improved or deteriorated and explain whether the assets are becoming more or less productive over time.
2014
2013
2012
Days sales outstanding aka Average days in Accts Receivable aka average collection period (equivalent to 365 divided by A/R turnover)
62
53
56
Days Inventory Outstanding aka Average days in Inventory (equivalent to inventory turnover divided by 365)
210
207
188
365 divided by Long-term asset turnover (or 365 divided by PPE turnover)
148
124
125
Note: all of these ratios are denominated in days.
2014
2013
2012
Days sales outstanding aka Average days in Accts Receivable aka average collection period (equivalent to 365 divided by A/R turnover)
62
53
56
Days Inventory Outstanding aka Average days in Inventory (equivalent to inventory turnover divided by 365)
210
207
188
365 divided by Long-term asset turnover (or 365 divided by PPE turnover)
148
124
125
Note: all of these ratios are denominated in days.
Explanation / Answer
Average collection period = 365 Accounts receivable turnover year 2012 2013 2014 so, accounts receivable turnover = 365 365 365 56 53 62 6.52 6.89 5.89 As accounts receivable turnover ratio is increassing in year 2013 which shows the good credit policy but in 2014 it has highly declined which indicates that there is inadequate collection from customers or large proportion of customers facing financial difficulties. Average days in inventory = 365 Inventory turnover ratio year 2012 2013 2014 so, inventory turnover = 365 365 365 188 207 210 1.94 1.76 1.74 Inventory turnover is a measure of how effeciently a company can control its merchandise , so it is important to have a high turnover. As the inventory turnover is declining in 2013 and 2014 it means that the company is not effective in selling the inventory it buys. = 365 long-term asset turnover year 2012 2013 2014 long term asset turnover 365 365 365 125 124 148 2.92 2.94 2.47 in 2013 the ratio is increasing which indicates the company is using its aseets more effeciently but in 2014 the ratio is declining which shows that the company is not using its assets effeciently and most likely have management or production problems.
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