BA350 Principles of Finance
Week 2 Assignment
Questions 3-3, 3-5, 3-6
Problems 3-1, 3-6, 3-11
Q3-3
Over the past years, M. D. Rryngaert & Co. has realized an increase in its current ratio and drop in its total assets turnover ratio. However, the company’s sales, quick ratio, and fixed assets turnover ratio have remained constant. What explains these changes?
Q3-5
How might (a) seasonal factors and (b) different growth rates distort a comparative ratio analysis? Give some examples. How might these problems be alleviated?
Q3-6
Why is it sometimes misleading to compare a company’s financial ratios with those of other firms that operate in the same industry?
P3-1- Greene Sisters has a DSO of 20 days. The company’s average daily sales are $20,000. What is the level of its accounts receivable? Assume there are 365 days in a year.
P3-6 Donaldson & Son has an ROA of 10%, a 2% profit margin, and a return on equity equal to 15%. What is the company’s total assets turnover? What is the firm’s equity multiplier?
P3-11: Complete the balance sheet and sales information in the table that follows for Hoffmeister Industries using the following financial data:
Debt ratio: 50%
Quick ratio: 0.80
Total assets turnover: 1.5
Day’s sales outstanding: 36.5 days
Gross profit margin on sales: (Sales - Cost of goods sold)/Sales = 25%
Inventory turnover ratio: 5.0
Calculation is based on a 365-day year.
Balance Sheet:
Cash_______________
Accounts receivable________
Fixed Assets_____________
Total Assets $300,000
Accounts payable_____________
Long-term Debt 60,000
Common Stock____________
Retained Earnings 97,500
Total liabilities and equity__________
Sales-__________________
Cost of Goods Sold_________________