Abington Hill Toys
ABINGTON-HILL TOYS, INC. 1. INTRODUCTION
Abington-Hill Toys’ new president, Vernon Albright, hires a new company comptroller, David Hartly. Hartly’s first task was to complete an analysis of the firm’s condition and generate financial planning for the company. 2. METHODOLOGY A. Current ratio B. Acid-test ratio C. Inventory Turnover Ratio D. Debt-Equity ratio E. Gross Margin F. Net Profit Margin G. Z Score 3. SOLUTION A. 280,000/290,000=.97 B. 130,000/290,000=.45 C. 900,000/150,000=6 D. 490,000/710,000=.69 E. 300,000/1,200,000=.25 F. 60,480/1,200,000=.05 G. 1.2(-10,000/1,200,000)+1.4(60,480/1,200,000)+3.3(126,000/1,200,000)+
1.05(1,200,000/1,200,000)=1.46
4. CONCLUSION
The current ratio of .97 means for every $.97 of current assets, Abington Hill Toys has $1 of current liabilities. Since the current ratio is less than the standard of 3.5, Abington Hill Toys implies a high risk and a probable incapability to generate sufficient working capital to meet its short-term needs. The acid-test ratio of .45 is less than half of its current ratio which means Abington Hill Toys’ inventory comprises of more than half of its current assets.
The inventory turnover ratio of 6 is higher than 5 which is the standard for companies in this industry. Since this ratio is higher than average, Abington Hill Toys is showing strong sales. The higher than standard inventory ratio could also mean ineffective buying of inventory.
The debt-equity ratio of .69 means Abington Hill Toys has $.69 of debt to every dollar of equity. This would put them in at a lower risk to enhance financial leverage.
The gross margin is at 25%. This means Abington Hill Toys is only profiting 25% above their direct costs. This is equivalent to the standard of other companies in this industry. The net profit margin of 5% is less than the standard of 8%. Abington Hill Toys’ net profit margin means equity holders will only receive 5% from
Abington-Hill Toys’ new president, Vernon Albright, hires a new company comptroller, David Hartly. Hartly’s first task was to complete an analysis of the firm’s condition and generate financial planning for the company. 2. METHODOLOGY A. Current ratio B. Acid-test ratio C. Inventory Turnover Ratio D. Debt-Equity ratio E. Gross Margin F. Net Profit Margin G. Z Score 3. SOLUTION A. 280,000/290,000=.97 B. 130,000/290,000=.45 C. 900,000/150,000=6 D. 490,000/710,000=.69 E. 300,000/1,200,000=.25 F. 60,480/1,200,000=.05 G. 1.2(-10,000/1,200,000)+1.4(60,480/1,200,000)+3.3(126,000/1,200,000)+
1.05(1,200,000/1,200,000)=1.46
4. CONCLUSION
The current ratio of .97 means for every $.97 of current assets, Abington Hill Toys has $1 of current liabilities. Since the current ratio is less than the standard of 3.5, Abington Hill Toys implies a high risk and a probable incapability to generate sufficient working capital to meet its short-term needs. The acid-test ratio of .45 is less than half of its current ratio which means Abington Hill Toys’ inventory comprises of more than half of its current assets.
The inventory turnover ratio of 6 is higher than 5 which is the standard for companies in this industry. Since this ratio is higher than average, Abington Hill Toys is showing strong sales. The higher than standard inventory ratio could also mean ineffective buying of inventory.
The debt-equity ratio of .69 means Abington Hill Toys has $.69 of debt to every dollar of equity. This would put them in at a lower risk to enhance financial leverage.
The gross margin is at 25%. This means Abington Hill Toys is only profiting 25% above their direct costs. This is equivalent to the standard of other companies in this industry. The net profit margin of 5% is less than the standard of 8%. Abington Hill Toys’ net profit margin means equity holders will only receive 5% from