ADM 1340 Lecture Notes - Lecture 7: Market Price, Dividend Yield, Profit Margin

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roseskunk973

8 Mar 2016

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ADM 1340 Full Course Notes

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3 types of financial ratios = liquidity, solvency, & profitability. Short-term debt paying ability on a cash basis. Current ratio, cash current debt coverage, receivables turnover, inventory. Average collection period, days in inventory ---- use turnover ratios in their denominators: lower result = better. You want fewer days to collect receivables & fewer days of inventory on hand. Exception = a current ratio can be high at times b/c of higher balances of receivables or inventory included in current assets that are result of uncollectible receivables or slow-moving inventory. This is why it"s important never to conclude an assessment of liquidity based only on 1 ratio. In the case of the current ratio, it should always be interpreted along with the receivables & inventory turnover ratios. Net cash provided (used) by operating activities net capital expenditures . Cash available from operating activities for discretionary purposes.

Related Questions

Explain how the ratios help identify the strengths and weaknesses of the facility and the management team.

The students will use Financial Ratios to analyze a potential strategic acquisition.

The student will use the Financial Ratios to evaluate the current management teamâs ablity to make good long term and short term decisions. Should Acme continue to employ the current management team. If Beechtree is acquired, do we keep its management team or do build a new one

Ratio	Formula	Standard	Beechtree
Current Ratio (Liquidity)	Current Assets/Current Liabilities	1.3	1.15
Quick Ratio (liquidity)	(Current Assets-Supplies on hand)/Current Liabilities	1.2	.9
Days Cash on Hand (liquidity)	(Cash on Hand +Market Securities)/((Tot Operating Exp-Depreciation Exp)/365)	50	35
Days in Net Receivable (liquidity)	(Accounts Receivable +Notes Receivable + Other Receivable-allowance for uncollectable)/(Tot Operating Revenue/365)	49	65
Debt Service Coverage Ratio (solvency)	Net Operating Income/(Principal +interest + lease payment	>1	.89
Operating Margin (profitability)	Operating Income/Total Operating Revenue	>.05	-.005
Return on Total Assets (profitability)	Net Operating Income/Total Assets	1.1	.9

Net Operating Income for this financial statement=Decrease in unrestricted net assets + Interest Expense + Depreciation

scarletpug83

1. The formula for Accounts Receivable turnover is

Select one:

a. Net Sales / average accounts receivable

b. Cost of goods sold / average accounts receivable

c. Net Sales / average merchandise inventory

d. 360 days / average accounts receivable

2. The category of ratios that determine the economic status ofpublicly-traded companies is

Select one:

a. Profitability ratios

b. Market value ratios

c. Liquidity Ratios

d. Solvency ratios

3. The working capital ratio is

Select one:

a. Quick assets / current liabilities

b. Working capital /current liabilities

c. Current assets minus current liabilities

d. Current assets/current liabilities

4. Earnings per share is calculated by

Select one:

a. Dividing net income by the authorized ordinary shares.

b. Dividing net income less preferred dividends by number ofordinary shares outstanding.

c. None of the above.

d. Dividing net income by the total number of ordinary andpreferred shares issued.

5. Which of the following belong to the profitabilityratios?

Select one:

a. Rate of return on equity

b. Rate of return on assets

c. All of the above

d. Gross Profit Margin

6. The category of ratios that shows the ability of the firm topay its long-term obligations is

Select one:

a. Profitability ratios

b. Solvency ratios

c. Market value ratios

d. Liquidity Ratios

7. Operating profit margin equals

Select one:

a. Income from operations / sales

b. Net income / sales

c. Gross profit / sales

d. Profit from operations / cost of sales

8. The following are quick assets except

Select one:

a. Short-term investments

b. Merchandise Inventory

c. Accounts Receivable

d. Cash

9. The following are liquidity ratios except

Select one:

a. Earnings per share

b. Working capital ratio

c. Quick ratio

d. Receivable turnover

10. Quick assets equals

Select one:

a. All current assets

b. Cash and Accounts receivable only.

c. Total assets less non-current assets

d. Current assets minus inventory

jadebear393

Some recent financial statements for Smolira Golf, Inc., follow.

SMOLIRA GOLF, INC. Balance Sheets as of December 31, 2015 and 2016
	2015		2016			2015		2016
Assets					Liabilities and Ownersâ Equity
Current assets					Current liabilities
Cash	$	2,881	$	2,757	Accounts payable	$	2,208	$	2,710
Accounts receivable		4,712		5,671	Notes payable		1,805		2,226
Inventory		12,698		13,672	Other		101		118
Total	$	20,291	$	22,100	Total	$	4,114	$	5,054
					Long-term debt	$	14,400	$	17,160
					Ownersâ equity
					Common stock and paid-in surplus	$	43,500	$	43,500
Fixed assets					Accumulated retained earnings		15,709		39,915
Net plant and equipment	$	57,432	$	83,529	Total	$	59,209	$	83,415
Total assets	$	77,723	$	105,629	Total liabilities and ownersâ equity	$	77,723	$	105,629

SMOLIRA GOLF, INC. 2016 Income Statement
Sales			$	189,570
Cost of goods sold				127,303
Depreciation				5,223
EBIT			$	57,044
Interest paid				1,320
Taxable income			$	55,724
Taxes				19,503
Net income			$	36,221
Dividends	$	12,015
Retained earnings		24,206

Find the following financial ratios for Smolira Golf (use year-end figures rather than average values where appropriate): (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Enter the profitability ratios as a percent.)

		2015		2016
Short-term solvency ratios
a.	Current ratio		times		times
b.	Quick ratio		times		times
c.	Cash ratio		times		times
Asset utilization ratios
d.	Total asset turnover				times
e.	Inventory turnover				times
f.	Receivables turnover				times
Long-term solvency ratios
g.	Total debt ratio		times		times
h.	Debtâequity ratio		times		times
i.	Equity multiplier		times		times
j.	Times interest earned ratio				times
k.	Cash coverage ratio				times
Profitability ratios
l.	Profit margin				%
m.	Return on assets				%
n.	Return on equity				%

yellowgoat340

ADM 1340 Lecture Notes - Lecture 7: Market Price, Dividend Yield, Profit Margin

ADM 1340 Full Course Notes

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