Aa Aa 2. Asset management ratios Asset management ratios are used to measure how

Question

Aa Aa 2. Asset management ratios Asset management ratios are used to measure how effectively a firm manages its assets, by relating the amount a firm has invested in a particular type of asset (or group of assets) to the amount of revenues the asset is generating. Examples of asset management ratios include the average collection period (also called the days sales outstanding ratio), the inventory turnover ratio, the fixed asset turnover ratio, and the total asset turnover ratio. Consider the following case: Monroe Manufacturing has a quick ratio of 2.00x, $31,500 in cash, $17,500 in accounts receivable, some inventory, total current assets of $70,000, and total current liabilities of $24,500. The company reported annual sales of $500,000 in the most recent annual report. Over the past year, how often did Monroe Manufacturing sell and replace its inventory? O 2.86 x O 26.19 x O 8.01x O 23.81 x The inventory turnover ratio across companies in the manufacturing industry is 20.24x. Based on this information, which of the following statements is true for Monroe Manufacturing? O Monroe Manufacturing is holding more inventory per dollar of sales compared to the industry average. O Monroe Manufacturing is holding less inventory per dollar of sales compared to the industry average. 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 $500,000 each. You've collected company data to compare Like Games and Our Play. Last year, the average sales for all industry competitors was $1,275,000. 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

Explanation / Answer

Using the quick ratio’s value, solve for the inventories as follows: Quick Ratio = (Current Assets — Inventories)/ Current Liabilities 2 = ($70000 - Inventories)/$24,500 Inventories = $70000 - ($24500 x 2) $21,000.00 Inventory Turnover Ratio = Sales / Inventories Inventory Turnover Ratio = $500,000/$21,000 23.81 X Monroe Industries is holding more inventory per dollar of sales compared to the industry average. 1) Likes Games Our Play Industry DSO ratio = accounts receivable / (annual sales / 365 days) DSO ratio = 13500/(500,000/365) 9.855 DSO ratio = 19500/(500,000/365) 14.235 DSO Ratio = 19250/($1275000/365) 5.511 Low Like Games Our Play 2) Likes Games Our Play Industry Fixed Assets Turnover Ratio = Sales / Net Fixed Assets Fixed Assets Turnover Ratio = $500,000/$275000 1.82 Fixed Assets Turnover Ratio = $500,000/$400000 1.25 Fixed Assets Turnover Ratio = $1275000/$1083750 1.18 Less More 3) Total Assets Turnover Ratio = Sales / Total Assets Total Assets Turnover Ratio = $500,000/$475000 1.05 Total Assets Turnover Ratio = $500,000/$625000 0.8 Total Assets Turnover Ratio = $1275000/$1173000 1.09 1.05 less

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