BTN 13-7 Assume that David and Tom Gardner of The Motley Fool (Fool.com e) have
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BTN 13-7 Assume that David and Tom Gardner of The Motley Fool (Fool.com e) have impressed you since you first heard of their rather improbable rise to prominence in financial circles. You learn of a staff opening at The Motley Fool and decide to apply for it. Your resume is successfully screened from the thousands received and you advance to the interview process. You learn that the interview consists of analyzing the following financial facts and answering analysis questions below. (The data are taken from a small merchandiser in outdoor recreational equipment.) 2013 1000% 15.3% Salo trend 1370% 98% 1250% 13.7% tosi Acid-cest ratio Accounts receivable tuoe Ratum on total ns 2.6times 24s 30 m 11 1% 12.25% 975% 13% 11S0% 15% Page 553 Required these data to answer each of the following questions with explanations ? Explain.Explanation / Answer
1-
Acid test ratio of the company is 1.2, 1.1 & .8 in Year 2013, 2014 and 2015, so we can say that company is having shortage of cash and cash equivalent so it may have difficulty to pay out its current liabilities and to avail discount on payment of creditors. Current ratio of company is increasing but that is due to increase in investment in inventories and prepaid expense.
2013
2014
2015
2-
average collection period = 365/accounts receivable turnover ratio
44.5122
49.32432
54.47761
No company is not collecting its accounts receivables more rapidly as its average collection period is increasing incomparison of previous year
3-
2013
2013
2014
2014
2015
2015
Accounts receivable = sales/accounts receivable turnover
100/8.2
12.19512
125/7.4
16.89189
137/6.7
20.44776
Investment in accounts receivables are increasing as sales is increasing
we have sales as 100 as base in 2013
4-
2013
2013
2014
2014
2015
2015
investment in plant assets = sales/plant asset ratio
100/3
33.33333
125/3.3
37.87879
137/3.5
39.14286
Investment in plant assets is increasing over the year
we have sales as 100 as base in 2013
5-
As return on equity investment is decreasing over the year it means that return on owners investment in decreasing over the years
1-
Acid test ratio of the company is 1.2, 1.1 & .8 in Year 2013, 2014 and 2015, so we can say that company is having shortage of cash and cash equivalent so it may have difficulty to pay out its current liabilities and to avail discount on payment of creditors. Current ratio of company is increasing but that is due to increase in investment in inventories and prepaid expense.
2013
2014
2015
2-
average collection period = 365/accounts receivable turnover ratio
44.5122
49.32432
54.47761
No company is not collecting its accounts receivables more rapidly as its average collection period is increasing incomparison of previous year
3-
2013
2013
2014
2014
2015
2015
Accounts receivable = sales/accounts receivable turnover
100/8.2
12.19512
125/7.4
16.89189
137/6.7
20.44776
Investment in accounts receivables are increasing as sales is increasing
we have sales as 100 as base in 2013
4-
2013
2013
2014
2014
2015
2015
investment in plant assets = sales/plant asset ratio
100/3
33.33333
125/3.3
37.87879
137/3.5
39.14286
Investment in plant assets is increasing over the year
we have sales as 100 as base in 2013
5-
As return on equity investment is decreasing over the year it means that return on owners investment in decreasing over the years
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