Page 145 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes Ratio 2010 2009 2008 2010-Industry Average
Long-term debt 0.45 0.40 0.35 0.35
Inventory Turnover 62.65 42.42 32.25 53.25
Depreciation/Total Assets 0.25 0.014 0.018 0.015
Days’ sales in receivables 113 98 94 130.25
Debt to Equity 0.75 0.85 0.90 0.88
Profit Margin 0.082 0.07 0.06 0.075
Total Asset Turnover 0.54 0.65 0.70 0.40
Quick Ratio 1.028 1.03 1.029 1.031
Current Ratio 1.33 1.21 1.15 1.25
Times Interest Earned 0.9 4.375 4.45 4.65
Equity Multiplier 1.75 1.85 1.90 1.88

In the annual report to the shareholders, the CEO of Flipper Inc wrote, "2008 was a good
year for the firm with respect to our ability to meet our short-term obligations. We had
higher liquidity largely due to an increase in highly liquid current assets (cash, account
receivables and short-term marketable securities)." Is the CEO correct? Explain and use
only relevant information in your analysis.
8. In the above question, what will you say when you are asked to provide the shareholders
with an assessment of the firm's solvency and leverage. Be as complete as possible given
the above information, but do not use any irrelevant information.
9. Firm A has a Return on Equity (ROE) equal to 24%, while firm B has an ROE of 15% during
the same year. Both firms have a total debt ratio (D/V) equal to 0.8. Firm A has an asset
turnover ratio of 0.9, while firm B has an asset turnover ratio equal to 0.4. What can we
analyse about the relationship between both the firms?
10. If a firm has 1,00,000 in inventories, a current ratio equal to 1.2, and a quick ratio equal
to 1.1, what is the firm's Net Working Capital?
11. What can you say about the asset management of the firm discussed in question 6? Be as
complete as possible given the above information, but do not use any irrelevant
information.

Answers: Self Assessment

1. (d) 2. (d)

3. (a) 4. (c)
5. (c) 6. (d)
7. (d) 8. (c)
9. (a) 10. (d)

11. (c) 12. (d)
13. (d) 14. (b)
15. (d) 16. (d)

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