BUSI2093 Unit1 Problems LM Essay

BUSI2093 Unit1 Problems LM Essay BUSI2093 Unit1 Problems LM Essay BUSI2093 - Introduction Managerial Finance Chapter 14, Problem 9 Financial Ratios - Liquidity Required Data Current Assets Current Liabilities Inventories Cash $ $ $ $ 2011 1,630,200 1,857,200 587,500 191,000 $ $ $ $ 2010 1,504,700 1,787,700 563,600 188,900 Current Ratio: Current Ratio = current assets / current liabilities Current Ratio = 0.8778 0.8417 $ $ $ $ Change 125,500 69,500 23,900 2,100 0.0361 Quick Ratio: Quick Ratio = (current assets - inventories) / current liabilities Quick Ratio = 0.5614 0.5264 0.0350 Cash Ratio: Cash Ratio = cash / current liabilities Cash Ratio = 0.1028 0.1057 -0.0028 Liquidity ratios measure a company's ability to meet its short term obligations in a timely fashion (Brooks 2013; pg 429) The current, quick and cash ratios have resulted in a number less than 1, meaning that the current assets are not enough to cover the company's current liabilities. This can be an issue should the creditors demand repayment all at once. The year over year change of these two ratio's have slightly improved, however to investors these results would still be concerning. References Brooks, Raymond M. (2013). Financial management: Core concepts, (2nd ed). NJ: Prentice Hall BUSI2093 - Introduction Managerial Finance Chapter 14, Problem 10 Financial Ratios - Financial Leverage Financial leverage ratios measure a company's ability to meet its long-term debt obligations. It helps answer the question, Can normal operations cover the interest expense from debt, or will additional capital be needed to satisfy the debt obligation? . (Brooks 2013; pg 431) Required Data Total Assets Total Liabilities Total Equity EBIT Interest Expense Depreciation $ $ $ $ $ $ 2011 14,689,400 11,977,700 2,711,700 3,199,300 375,000 1,498,980 $ $ $ $ $ $ 2010 14,119,500 11,067,200 3,052,300 2,979,700 356,100 1,473,240 Debt Ratio: Debt Ratio = total liabilities / total assets Debt Ratio = 0.8154 0.7838 Change $ 569,900 $ 910,500 -$ 340,600 $ 219,600 $ 18,900 $ 25,740 0.0316 In 2011, for every dollar of assets, the Tyler Toys owes $0.82, vs. only $0.78 a year ago. An increase in this ratio could be looked at negatively by the managers and shareholders. One would need to look at the reason for the increase in debt from a year ago to see if it is justified. For instance was the increased debt due to long term financing for an expansion of the business or due to increased purchase of inventory that isn't selling? Times Interest Earned Ratio: Times Interest Earned Ratio = EBIT / interest expense = 8.5315 8.3676 0.1639 In 2011, Tyler Toys EBIT could cover its interest obligation 8.5 times which was slightly better than the year before at 8.4 times. The year over year change wouldn't signal any concern with management and the shareholders, however should be compared against the companys' aspirations to ensure it is aligned with meeting its strategies. Cash Coverage Ratio: Cash Coverage Ratio = (EBIT + depreciation) / interest expense) = 12.5287 12.5047 0.0240 In 2011, Tyler Toys can generate cash from its normal operations 12.5 times which roughly constant from the year before. Whether this is good or bad will depend on the strategy of the company. From a shareholder perspective I would want to see the company using its cash to expand or grow its EBIT. References Brooks, Raymond M. (2013). Financial management: Core concepts, (2nd ed). NJ: Prentice Hall BUSI2093 - Introduction Managerial Finance Chapter 14, Problem 11 Financial Ratios - Asset Management Asset management ratios measures how efficient a compan y uses its assets to generate revenue or how much cash is tied up in assets like inventory or receivables. (Brooks 2013; pg 432) Required Data Total Assets COGS Inventory Sales Accounts Receivable 2011 2010 Change $ 14,689,400 $ 14,119,500 $ 569,900 $ 8,449,100 $ 8,131,300 $ 317,800 $ 587,500 $ 563,600 $ 23,900 $ 14,146,700 $ 13,566,400 $ 580,300 $ 669,400 $ 630,400 $ 39,000 Inventory Turnover: Inventory Turnover =