• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Calculate the firm's 2003 financial rations and then fill the preceding table.

Extracts from this document...

Introduction

Question 1 a: Calculate the firm's 2003 financial rations and then fill the preceding table. Answer: Current ratio = $1,531,181 ? $616,000 = 2.5 Quick ratio = (1,513,181 - $700,625) ? $616,000 = 1.3 Inventory turnover (times) = $3,704,000 ? $700,625 = 5.3 Average collection period = ($805,556 ? $5,075,000) x 360 = 57 days Total asset turnover (times) = $5,075,000 ? $3,125,000 = 1.6 Debt ratio = ($1,781,250 ? $3,125,000) x 100 = 57% Times interest earned ratio = $153,000 ? $93,000 = 1.6 Gross profit margin = ($1,371,000 ? $5,075,000) x 100 = 27% Net profit margin = ($36,000 ? $5,075,000) x 100 = 0.71% Return on total assets (ROA) = ($36,000 ? $3,125,000) x 100 = 1.2% Return on common equity (ROE) = ($36,000 ? $1,343,750) x 100 = 2.7% Price/earning (P/E) ratio = $11.38 ? $0.33 = 34.48 Market/book (M/B) ratio = $1,343,750 - $50,000 100,000 = $12.94 = $11.38 ? $12.94 = 0.88 Martin Manufacturing Company Historical Ratios Ratio Actual 2001 Actual 2002 Actual 2003 Industry Average Current ratio (times) 1.7 1.8 2.5 1.5 Quick ratio (times) 1.0 0.9 1.3 1.2 Inventory turnover (times) 5.2 5.0 5.3 10.2 Average collection period (days) 50 55 57 46 Total asset turnover (times) 1.5 1.5 1.6 2.0 Debt ratio 45.8% 54.3% 57% 24.5% Times interest earned ratio 2.2 1.9 1.6 2.5 Gross profit margin 27.5% 28% 27% 26% Net profit margin 1.1% 1.0% 0.71% 1.2% Return on total assets (ROA) ...read more.

Middle

$5 x 1,600,000 $8,000,000 Total contribution margin $24,000,000 Less: Other costs Movie production $10,000,000 Advertising $5,000,000 $15,000,000 Operating profit $9,000,000 By reducing the selling price by 20% to $20, he anticipated the sales volume to increase to 1,600,000 units from 750,000 units thus registering an increase of 113%. The breakeven point in unit increased to 1,000,000 units. The difference of 250,000 units (1,000,000 - 750,000) in breakeven point represents 33% increase. Based on the anticipated sales the company is expected to generate operating profit of $9,000,000. Julie Wilson's suggestion Breakeven in unit = $10,000,000 + $8,000,000 $25 - $5 = $18,000,000 $20 = 900,000 unit Breakeven in dollars = 900,000 x $25 = $22,500,000 Margin of safety = $37,5000,000 - $22,500,000 x 100 $37,500,000 = 40% Projected Income Statement Sales revenue $25 x 1,500,000 $37,500,000 Less: Total variable cost $5 x 1,500,000 $7,500,000 Total contribution margin $30,000,000 Less: Other costs Movie production $10,000,000 Advertising $8,000,000 $18,000,000 Operating profit $12,000,000 Julie's strategy to increase sales is via aggressive advertising. She anticipated the sales volume to reach 1,500,000 units level, a 100% increase in sales volume as well as in revenue. She explained that the cost will involve an additional $3,000,000 million in advertising cost and still maintain the selling price. The new breakeven point is at 900,000 units' level an increase of 20% from 750,000 units. The company is expected to generate operating profit of $12,000,000. Evaluation of the strategies The strategy of doing nothing should not be adopted as the company would not be generating any profits. ...read more.

Conclusion

One of such area would be the accruals and deferrals of revenues and expenses. Accrual is defined as recognition of revenue prior to receipt of payment and expenses that incurred and has yet to receive bill. In the case of deferrals, the company is delaying recognition of revenues and expenses. Nevertheless, for each of these a journal entry is required to record the transactions and it is known as "Adjusting Entry". Nest, the financial controller, can accrue revenues and defer expenses and still be ethical under the following circumstances: The fundamental issue that arose from the Xerox case was the revenue recognition concept. It was established in the case that revenues should not be recognised until realised and earned. Therefore based on the above concept, Nest can accrue revenues for works which was completed within the accounting period and has yet to bill the clients. He can also accrue revenue in the form of interest earned from placement of deposits with financial institutions. It can be applied in the event the interest payments due date crosses over into the next accounting period. Nest can accrue interest earned up to the end of the financial year. As in the case of expenses, Nest can defer expenses that are meant for the following financial year. This type of payments is usually termed as prepaid expenses. Some of the expenses that can be deferred are insurance premium and business licence where the payments period of coverage or licence expiry dates falls in the next accounting year. Under these circumstances, the payments should be prorated and the portion meant for the next accounting year can be deferred to the following year. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our University Degree Finance section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related University Degree Finance essays

  1. BAAF Accounting & Finance/ ACCA Professional Accountancy Course

    But it must also be noted that credit terms for Tesco's may differ from Sainsbury's - even form the same supplier - due to credit history.

  2. Managing Financial Principles & Techniques

    In this type of business, members have limited liability, which means that even if the business fails owing significant amounts, the owner's liability for those debts is limited to the capital they have invested. Formats of Financial Statements:- There are four formats of financial statements: * Balance Sheet: Statement of financial position at a given point in time.

  1. This group assignment of Financial Management will assess the positions financial performances for six ...

    PAIT -------------------------- Number of Ord shares 6.9 6.6 9.6 14 24.5 9.3 14 24.1 14.5 17.7 Divided Yield (%) Dividend per Share ------------------- X 100 Market Price per Share 1.13 1.4 2.25 1.78 1.75 3.73 3.23 2.02 3.70 2.54 PE Ratio (Times)

  2. Is there a future for one global set of generally accepted accounting principles ?

    Adopting IFRS allows multi-national groups to apply common accounting across their subsidiaries, which can improve internal communications, and the quality and timeliness of management reporting and group decision-making. At the same time IFRS can ease acquisitions and divestments through greater certainty and consistency of accounting interpretation.

  1. Project on portfolio management in Mutual Funds. The analysis and advice presented in ...

    Normally, the costs of running a fund grow slower than the growth in the fund size - so, the more assets in the fund, the lower should be its expense ratio Loads: Entry Load/Front-End Load (0-2.25%)- its the commission charged at the time of buying the fund to cover the cost of selling, processing etc.

  2. OUTLINE OF BUSINESS PLAN - opening a caf.

    in the number of new hotels, student residences and major conference facilities. Therefore, if I open my café in Greenwich I expect an increase in customers as the number of visitors visiting Greenwich is increasing year by year. The strengths of opening my café in Greenwich are, * Quality tourist

  1. Disney Financial Analysis

    The Company adopted the measurement date provision by re-measuring plan assets and benefit obligations at the beginning of fiscal 2009. Adoption of the measurement date provisions resulted in a reduction of $35 million to retained earnings and a $100 million benefit to accumulate other comprehensive income.

  2. Executive Summary

    capital for a different purpose than the one's agreed with the client. These problems plaguing the industry were due to the lack of regulations or laws in security dealings. After a couple of years of more experience in the industry, Merrill and Lynch decided to start an investment bank that

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work