Tutorial 3 BF
Tutorial 3 (topic 2) Business finance
(b) Liquidity ratios which are the current ratio and quick ratio indicate how liquid the firm is. J.B. Chavez Corporation’s current ratio has increased across years from 2008 to 2009 and both years’ current ratio are higher than the industry norm. It shows that the corporation has enough current assets to convert into cash to meet short term obligations. However, the quick ratio has decreased across years from 2008 -2009, and the ratio is lower than the industry norm. This means that the corporation has kept a lot of inventories which are the least liquid current assets and the amount of inventories is getting higher across year. However, since the current ratio is high enough, the corporation is considered liquid.
(c) the fixed assets turnover has increased across years and higher than the industry norm. It shows that the corporation has utilized all its fixed assets in making sales. However, total assets turnover is much lower than the industry norm, although it has a slight increase across years. This indicates that the corporation does not utilized fully on its current assets to increase sales volume. Hence, the Operating income return on investment is lower than the industry norm. The corporation does not generate adequate profit on its assets especially on current assets.
(d) The firm’s assets are financed by the owner’s equity and financial leverage in the form of bonds.
(e) Return on common equity shows a slight increase across year 2008-2009. The firm has improved on its earning. However, the ratio is far lower than the industry norm, the common stockholder does not receive a good return on their investment. This company has enhanced the return to its owners and with a small decline of financial risk (lower debt ratio).
Question 2
The annual sales for Salco Inc., were $4.5 million last year. The firm’s end-of-year balance sheet appeared as follows: Current Assets $ 500,000 Liabilities
(b) Liquidity ratios which are the current ratio and quick ratio indicate how liquid the firm is. J.B. Chavez Corporation’s current ratio has increased across years from 2008 to 2009 and both years’ current ratio are higher than the industry norm. It shows that the corporation has enough current assets to convert into cash to meet short term obligations. However, the quick ratio has decreased across years from 2008 -2009, and the ratio is lower than the industry norm. This means that the corporation has kept a lot of inventories which are the least liquid current assets and the amount of inventories is getting higher across year. However, since the current ratio is high enough, the corporation is considered liquid.
(c) the fixed assets turnover has increased across years and higher than the industry norm. It shows that the corporation has utilized all its fixed assets in making sales. However, total assets turnover is much lower than the industry norm, although it has a slight increase across years. This indicates that the corporation does not utilized fully on its current assets to increase sales volume. Hence, the Operating income return on investment is lower than the industry norm. The corporation does not generate adequate profit on its assets especially on current assets.
(d) The firm’s assets are financed by the owner’s equity and financial leverage in the form of bonds.
(e) Return on common equity shows a slight increase across year 2008-2009. The firm has improved on its earning. However, the ratio is far lower than the industry norm, the common stockholder does not receive a good return on their investment. This company has enhanced the return to its owners and with a small decline of financial risk (lower debt ratio).
Question 2
The annual sales for Salco Inc., were $4.5 million last year. The firm’s end-of-year balance sheet appeared as follows: Current Assets $ 500,000 Liabilities