CHAPTER 3 WORKING WITH FINANCIAL STATEMENTS Financial statement information is often our ONLY source of information. Consequently‚ we use the information we have and make adjustments where appropriate. 1. Ratio Analysis ♦ Short-Term Solvency or Liquidity Ratios – Measures the ability of the firm to meet its current (short-term‚ < 1 year) obligations. • Liquidity is defined as the ability to convert assets to cash quickly without a significant loss in value
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Case Study | ASSESSING ROCHE PUBLISHING COMPANY ’SCASH MANAGEMENT EFFICIENCY | | ASSESSING ROCHE PUBLISHING COMPANY ’S CASH MANAGEMENT EFFICIENCY Lisa Pinto‚ vice president of finance at Roche Publishing Company‚ a rapidly growing publisher of college texts is concerned about the firm ’s high level of short term resource investment. She believes the firm can improve the management of its cash and‚ as a result‚ reduce this investment. In this regard‚ she charged Arlene Besseoff‚ the
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7/5716.2= 9.3% g. Debt-to-equity ratio 2006 4447.8/790.4= 562.7% 2007 5004.6/711.6= 703.3% h. Long-term debt-to-capital ratio 2006 1170.7/5238.2= 0.2% 2007 1167.9/5716.2= 0.2% i. Days of inventory 2006 900.3/(3416.5/365)= 96.2 2007 1041.8/(3941.2/365)= 96.5 j. Inventory turnover ratio 2006 3416.5/900.3= 379.5% 2007
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Sheet 1. Return on Assets = Net Profit before Interest and Tax / Average Total Assets 2. Average Accounts Payable settlement = Average Accounts Payable / Credit purchases x 365 3. Asset turnover ratio = (Sales / average Total Assets) x 100 4. Asset turnover period = (Average total assets / Sales) x 365 5. Return on Equity (Return on Shareholder’s’ Funds) = Net Profit after Tax and preference dividends / Average ordinary share capital + Reserves x 100 6. Gross Profit margin
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Average Inventory $2‚980 times $3‚119 times Inventory turn over ratio measures the number of times average inventory was sold during the period. Kohl’s inventory ratio is slightly higher than JC Penne’s. Days in Inventory 365 days 365 = 96 365 = 105 Inventory turnover 3.8 days 3.5 days It measures the average number of days inventory is held. JC Penne hold their
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$66‚000 Δ Bad debt expense (on incremental sales only) Policy one 1.75% ($800‚000) (14‚000) New policy 2.0% ($1‚100‚000) (22‚000) Δ Investment in accounts receivable (incremental sales only) Policy one $800‚000 × 50/365 = $109‚589 Policy two $1‚100‚000 x 65/365 = $195‚890 Δ Opportunity benefit on investment in accounts receivable at 16% Policy one: $109‚589 × 16% = (17‚534) Policy two: $195‚840 × 16% = (31‚342) Total incremental change $ 16‚466 $ 12‚658 Both
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P7 Ratios Liquidity Ratios Current Ratio 2013 Current assets = 1901 Current liabilities = 3115 CR = CA / CL = 0.61 2012 Current assets = 2032 Current liabilities = 3136 CR = CA / CL =0.64 The difference between the two years is 0.3p decrease. As Sainsbury’s needs to have a £2 to £1 earned‚ the price is behind in both years. This means that there is a 2 year crises at Sainsbury’s. Acid test ratio 2013 Current assets = 1901 Inventories = 987 Current liabilities = 3115 ATR = (CA
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Chapter 11: Supply Chain Management Supply Chain – sequence of organizations – their facilities and activities – that are involved in producing and delivering a product Supply Chain Management – collaboration and coordination of all components of the supply chain so that market demand is met as efficiently and effectively as possible Outsourcing – buying goods or services instead of producing or providing them in-house Factors that have made it desirable for organizations to actively manage their
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Case Study 2: Financial Analysis and Forecasting 28/08/2014 Word Count 905 1. Strengths and Weaknesses of Horniman Horticulture Strengths: - Business growth is positively increasing (Revenue increased 15% from 2004) - Pay suppliers early which allows Horniman Horticulture to obtain a trade discount on purchases - No bank loan‚ ability to avoid borrowing from the bank to fund business functions Weaknesses: - Margins heavily reliant on fixed expense prices (Wages and Interest
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Average Account Receivables Coca- Cola PepsiCo Year 21‚962 =10.31 29‚261=10.04 2004 2‚131 2‚915 (2) Average collection period = 365 Receivable turnover Coca- Cola PepsiCo Year 365 = 35.4 Days 365 = 36.4 Days 2004 10.31 10.04 (3) Inventory
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