Over the past year, M.D. Ryngaert and Co. has realized an increase in its current ratio and a 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?
How might (a) seasonal factors and (b) different growth rates distort a comparative ratio analysis? Give some examples. How might these problems be alleviated?
Why is it sometimes misleading to compare a company’s financial ratio with those of other firms that operate in the same industry?
3-1 Days Sales Outstanding
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.
3-6 Du Pont Analysis
Donaldson and Son has an ROA of 10%, a 2% profit margin, and a return on equity equal to 15%. What is the company’s total asset turnover? What is the firm’s equity multiplier?
3-11 Balance Sheet Analysis
Complete the balance sheet and sales information in the table that follows for Hoffmeister Industries using the following financial data:
Debt ratio: 50%
Quick ration: 0.80
Total assets turnover: 1.5
Days sales outstanding: 365 days*
Gross profit margin on sales: (Sales – Cost of goods sold) /Sales = 25%
Inventory turnover ratio: 5.0
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