Bob's Inc has the following balance sheet and income statement data see image...The new CFO thinks that inventory are excessive and could be lowered to cause the current ratio to equal industry average 3.00 w/o affecting either sales or net income. assuming that inventories are sold off and not replaced to get the current ratio to the target level and that the funds generated are used to buy back common stock at book value, by how much would the ROE change? **Balance Sheet and Financial Analysis****Assets**- Cash: $14,000- Receivables: $70,000- Inventories: $260,000- Total Current Assets (CA): $344,000- Net Fixed Assets: $146,000- Total Assets: $490,000**Liabilities and Equity**- Accounts Payable: $42,000- Other Current Liabilities: $28,000- Total Current Liabilities (CL): $70,000- Long-term Debt: $160,000- Common Equity: $260,000- Total Liabilities and Equity: $490,000**Income Statement**- Sales: $280,000- Net Income: $21,000**Analysis**The new CFO suggests that inventories are excessive and could be reduced to adjust the current ratio to meet the industry average of 3.00. This adjustment would not impact sales or net income. The assumption is that inventories will be sold off without being replaced to achieve the target current ratio.

Return on equity (ROE) seems to be a financial performance metric that is derived by dividing net…

Answered: Bob's Inc has the following balance…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

100%

Bob's Inc has the following balance sheet and income statement data

see image...

The new CFO thinks that inventory are excessive and could be lowered to cause the current ratio to equal industry average 3.00 w/o affecting either sales or net income.
assuming that inventories are sold off and not replaced to get the current ratio to the target level and that the funds generated are used to buy back common stock at book value, by how much would the ROE change?

**Balance Sheet and Financial Analysis**

**Assets**
- Cash: $14,000
- Receivables: $70,000
- Inventories: $260,000
- Total Current Assets (CA): $344,000
- Net Fixed Assets: $146,000
- Total Assets: $490,000

**Liabilities and Equity**
- Accounts Payable: $42,000
- Other Current Liabilities: $28,000
- Total Current Liabilities (CL): $70,000
- Long-term Debt: $160,000
- Common Equity: $260,000
- Total Liabilities and Equity: $490,000

**Income Statement**
- Sales: $280,000
- Net Income: $21,000

**Analysis**
The new CFO suggests that inventories are excessive and could be reduced to adjust the current ratio to meet the industry average of 3.00. This adjustment would not impact sales or net income. The assumption is that inventories will be sold off without being replaced to achieve the target current ratio.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Expert Solution