FIN 2000 Lecture Notes - Lecture 2: Hybrid Security, Accounts Payable, Current Liability
Get access
Related Documents
Related Questions
Whiterock Corporation issued a bond issue to investors on January2, 2016. The 20-year corporate bond | |||||
has acontract rate of 5.5%. The contract terms specified the followingrequirements at the end of each year | |||||
untilthe bonds mature: | |||||
Working capital of $2,000,000 | |||||
Current ratio of 2.0 | |||||
Quick ratio of 1.8 | |||||
Whiterock calculated working capital, current ratio and the quickratio based upon the following determinations: | |||||
CurrentLiquidity Measurements | |||||
CurrentAssets: | WorkingCapital = Current Assets - Current Liabilities | ||||
Cash | 1,200,000 | 2,948,000 | |||
Marketable securities | 260,000 | ||||
Accounts receivable | 2,750,000 | ||||
Inventories | 440,000 | CurrentRatio | |||
Prepaid Insurance and Rent | 48,000 | 2.00 | |||
Intangible Assets | 1,200,000 | ||||
Total Current Assets | 5,898,000 | ||||
QuickRatio | |||||
Current Liabilities | 1.83 | ||||
Accounts Payable | 1,600,000 | ||||
Wages and Salaries Payable | 350,000 | ||||
Notes Payable (Short-term) | 1,000,000 | 2,950,000 | |||
What is the Revised Liquidity Measures: | |||||
WorkingCapital = Current Assets - Current Liabilities | |||||
CurrentRatio = | Current Assets | ||||
CurrentLiabilities | |||||
QuickRatio = | Quick Assets | ||||
CurrentLiabilities |
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