You are analyzing two companies that manufacture electronic toys-Like Games Inc.

Question

You are analyzing two companies that manufacture electronic toys-Like 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 $100,000 each. You've collected company data to compare Like Games and Our Play. Last year, the average sales for all industry competitors was $255,000. As an analyst, you want to make comments on the expected performance of these two companies in the coming year. You've collected data from the companies' financial statements. This information is listed as follows Data Collected (in dollars) Accounts receivable Net fixed assets Total assets Like Games 2,700 55,000 95,000 Our Play 3,900 80,000 125,000 Industry Average 3,850 216,750 234,600 Using this information, complete the following statements to include in your analysis 1. Our Play has time to collect cash from its customers than it takes Like Games. days of sales tied up in receivables, which is much than the industry average. It takes Our Play 2. Like Games's fixed assets turnover ratio is acquisition cost of its fixed assets is recorded at historic values when the company bought its assets and has been depreciated since then Assuming that fixed assets prices (not book values) rose over the past six years due to inflation, Our Play paid a assets. than that of Our Play. This is because Like Games was formed eight years ago, so the amount for its fixed 3. The average total assets turnover in the electronic toys industry is 1.09x, which means that $1.09 of sales is being generated with every dollar of investment in assets. A are total assets turnover ratio indicates greater efficiency. Both companies' total assets turnover ratios than the industry average

Explanation / Answer

Answers for blanks given below: calculations: 1) 14.24,higher,more average sales/day = 100000/365 = 273.9726 days of sales tied up in receivables = accounts receivables/273.9726 = 3900/273.9726 = 14.235 2) higher,higher asset turnover ratio = sales/netfixed assets our play = 100000/80000 = 1.25 little games = 100000/55000 = 1.818182 3) higher,lower total asset turover ratio = sales/total assets our play = 100000/125000 = 0.8 little games = 100000/95000 = 1.052632

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