MINDTAP From Cengage Ch 04: Assignment-Analysis of Financial Statements Consider
ID: 2808541 • Letter: M
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MINDTAP From Cengage Ch 04: Assignment-Analysis of Financial Statements Consider the following case: Adams Furniture has a quick ratio of 2.00x, $36,225 in cash, $20,125 in accounts receivable, some inventory, total current assets of $80,500, and total current lHabilities of $28,175. The company reported annual sales of $400,000 in the most recent annual report. Over the past year, how often did Adams Furniture sell and replace its inventory? 16.56x O 2.86 x O 18.22 x O 8.01 x The inventory turnover ratio across companies in the furniture industry is 14.0sx. Based on this information, which of the following statements is true for Adams Furniture? O Adams Furniture is holding less inventory per dollar of sales compared with the industry average O Adams Furniture is holding more inventory per doltar of sales compared with the industry average. You are analyzing two companies that manufacture electronic toys-ike Games Inc. and Our Play Inc. Like Games was launched eight years ago, whereas Our Play is a relatively new company that has been in operation for only the past two years. However, both companies have an equal market share with sales of $400,000 collected sales for all industry competitors was $1,020,000. As an analyst, you want to make comments on the expected performance of wiese two companies in the coming year, You've collected data from the companies' financial statements. This information is listed as follows each. You've collected company data to compare Like Games and Our Play. Last year, the average Data Collected (in dolars) Like Games 10,800 220,000 380,000 Our Play 15,600 320,000 500,000 Industry Average 15,400 867,000 938,400 Net fixed assets Total assets Using this information, complete the following statements to include in your analysis. 1, A collecting cash from its customers faster than average. 2. Our Play's fixed assets turnover ratio is the acquisition cost of its fixed assets is 3. Like Games's total assets turnover ratio is general, a higher total assets turnover ratio indicates greater efficiency days of sales outstanding represents an efficient credit and collection policy. Between the two but both companies are collecting their receivables less quickly than the industry than that of Like Games. This could be because Our Play is a relatively new company, so than the recorded cost of Like Games's net fixed assets than the industry's average total assets turnover ratio. In 0 Type here to searchExplanation / Answer
1 The inventory turnover ratio tells us about the furniture sold and replace by inventory Inventory Turnover - Sales/Inventory We will have to calculate the value of inventory Quick Ratio - Total Current assets - Inventory/Current Liabilities 2*28175 80500 - inventory 56350 80500 - inventory Inventory 24150 Inventory turnover - 400000/24150 16.56 Correct answer is Option a 2 The industry average is 14.08x This means that Adams furniture is holding less inventory per dollar of sales compared with the industry average 3 Collection Period for the Industry - Accounts Receivable/Sales*365 15400/1020000*365 5.51 days Collection period for Like Games 10800/400000*365 9.86 days Collection period for Our Play 15600/400000*365 14.24 days Fixed Assets turnover ratio - Sales/Net Fixed assets Industry 1020000/867000 1.18 Like Games 400000/220000 1.82 Our Play 320000/220000 1.45 Total assets turnover ratio - Sales/Total assets Industry 1020000/938400 1.09 Like Games 400000/380000 1.05 Our Play 320000/500000 0.64 1 A 6 days of sales outstanding represents an efficient credit and collection policy. Between the two companies Like Games is collecting cash from its customersfaster than Our Play, but both the companies are collecting receivables less quickly than the industry average 2 Our Plays fixed turnover ratio is less thanthat of Like Games. This could be because Our Play is a relatively new company so the acquisition costs of fixed assets is less thanthe recorded cost ofLike Games's net fixed assets 3 Like Games total assets turnover ratio is 1.05 which is less than the industry's average total assets turnover ratio. In general a higher total assets turnover ratio indicates greater efficiency
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