week _4 assignment busn (2)

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Webster University *

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Accounting

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Feb 20, 2024

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Homework Week 4 2024 1. __Ratio__Analysis involves calculating and analyzing financial ratios to assess a firm’s performance and to identify actions that could improve performance. 2. _Total Assets Turn over_ measure how efficiently a firm uses its assets, (inventory, accounts receivable and fixed assets). 3. Which equation looks at ROA as the product of the profit margin and the total asset turnover ratios? Answer: The DuPont analysis Equation is the formula that considers Returns on Assets (ROA) as the product of the profit margin and the total assets turnover ratios. ROA = Profit Margin * Total Assets Turnover 4. What type of financial statements divide all balance sheet amounts by total assets and all income statement amounts by net sales? Answer: common size financial statements All balance sheet numbers are shown as a proportion of total assets in common size financial statements, and all income statement amounts are shown as percentage of net sales. This makes it simpler to analyze and compare financial data from many companies and time period
5. _financial leverage ratios___ measure the extent to which a firm uses debt (or financial leverage) versus equity to finance its assets as well as how well the firm can pay off its debts. 6. ____profitable ratios ___ show the combined effects of liquidity, asset management, and debt management on the overall operating results of the firm. 7. Which set of ratios relate a firm’s stock price to its earnings and book value? Answer: The set of Ratios that relate a firm’s stock price to its earnings and book value is known as financial valuation Ratios . 8. Steve’s Tree Farm has $205,000,000 in total current assets which includes $111,000,000 in inventory. Steve’s Tree Farm also has $123,000,000 in current liabilities. Calculate the current ratio. Answer: The current ratio is: Current Ratio = Total Current Assets / Total Current Liabilities = $205,000,000 / $123,000,000 = 1.67 This means that for every dollar of current liability, Steve's Tree Farm has $1.67 of current assets to pay those liabilities. 9. Given the same information in #8, if the industry average for a quick ratio is 1.50, is Steve’s Tree Farm doing better or worse than its competitors? Answer : The quick ratio is calculated as follows: Quick Ratio=Total Current Assets−Inventory /Total Current Liabilities Quick Ratio=Total Current Liabilities /Total Current Assets−Inventory For Steve's Tree Farm: Quick Ratio=205,000,000−111,000,000/123,000,000 Quick Ratio=123,000,000/ 205,000,000−111,000,000 Quick Ratio≈0.73 Quick Ratio≈0.73 The industry average for a quick ratio is given as 1.50 Now, comparing the quick ratio of Steve's Tree Farm with the industry average: If Steve's Tree Farm has a quick ratio higher than 1.50, it is doing better than its compe titors. If Steve's Tree Farm has a quick ratio lower than 1.50, it is doing worse than its competitors.
In this case, Steve's Tree Farm has a quick ratio of approximately 0.73, which is less than the industry average of 1.50. Therefore, based on the quick ratio, Steve's Tree Farm is doing worse than its competitors 10. Given the same information in #8, calculate the quick ratio (also known as the acid test ratio) 1. Answer: Current Ratio: Current Ratio=Total Current Assets Total /Current Liabilities For Steve's Tree Farm: Current Ratio=205,000,000 /123,000,000 Current Ratio≈1.67 Steve's Tree Farm has a current ratio of approximately 1.67. 2. Quick Ratio (Acid-Test Ratio): Quick Ratio=Total Current Assets−Inventory/Total Current Liabilities For Steve's Tree Farm: Quick Ratio=205,000,000−111,000,000/123,000,000 Quick Ratio≈0.73 Steve's Tree Farm has a quick ratio of approximately 0.73. The quick ratio provides a more conservative measure of a company's liquidity since it excludes inventory, which may not be as easily convertible to cash. In summary: Current Ratio: 1.67 Quick Ratio: 0.73 11. Roberts and Company reported sales for 2023 of $1,500,000. Roberts and Company listed $300,000 of inventory on its balance sheet. Using a 365-day year, how many days did Roberts and Companies inventory stay on the premises? Answer: To calculate the number of days inventory stayed on the premises, you can use the following formula: Number of days = Inventory / Sales per day First, you need to calculate sales per day: Sales per day = Total sales / 365 days Sales per day = $1,500,000 / 365 days = $4,109.59
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