Calculate the projected inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover. How does Abiproffy's utilization of assets stack up against other firms in its industry? Calculate the projected current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company's liquidity position and its trend? Calculate the projected debt ratio, the debt-to-equity ratio, liabilities-to-assets ratio, earnings multiplier, times-interest-earned, and EBITDA coverage ratios. How does Abiproffy compare with the industry with respect to financial leverage? What can you conclude from these ratios? Calculate the projected price/earnings ratio and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company? It is commonly recommended that the managers of a firm compare the performance of their firm to that of its peers. Increasingly, this is becoming a more difficult task. Explain some of the reasons why comparisons of this type can frequently be either difficult to perform or produce misleading results.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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2. Calculate the projected inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover. How does Abiproffy's utilization of assets stack up against other firms in its industry?

  1. Calculate the projected current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company's liquidity position and its trend?
  2. Calculate the projected debt ratio, the debt-to-equity ratio, liabilities-to-assets ratio, earnings multiplier, times-interest-earned, and EBITDA coverage ratios. How does Abiproffy compare with the industry with respect to financial leverage? What can you conclude from these ratios?
  3. Calculate the projected price/earnings ratio and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company?
  4. It is commonly recommended that the managers of a firm compare the performance of their firm to that of its peers. Increasingly, this is becoming a more difficult task.
    Explain some of the reasons why comparisons of this type can frequently be either difficult to perform or produce misleading results.
Week 2 Knowledge Check
Financial Statements provide an overview of the company's operating results. Well-managed companies use their operating cash flows in different ways, including capital
expenditures, acquisitions, dividend payments, stock repurchases, and saving for future needs. Which company made the right choices? Investors and managers use financial
ratios to analyze financial statements. To this end, some of the techniques used are trend analysis, common size analysis, and percentage change analysis. In addition, the
financial ratios of a company are tied together in the DuPont Equation. Finally, the ratios are used to compare with other companies in the same industry.
Abiproffy company entered an expansion program and encounter a large loss in 2019, rather than the expected profit. As a result, its managers, directors, and investors are
concerned about the firm's survival. James Brown was brought in as assistant to Abiproffy's chairman, who had the task of getting the company back into a sound financial
position. Brown must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions to take. Your assignment is to help him
answer the following questions. Provide clear explanations, not yes or no answers. Use the recent and projected financial information attached and answer the questions
below.
1. Calculate the projected profit margin, operating profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about
these ratios?
2. Calculate the projected inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover. How does Abiproffy's utilization of assets stack
up against other firms in its industry?
3. Calculate the projected current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company's liquidity
position and its trend?
4. Calculate the projected debt ratio, the debt-to-equity ratio, liabilities-to-assets ratio, earnings multiplier, times-interest-earned, and EBITDA coverage ratios. How does
Abiproffy compare with the industry with respect to financial leverage? What can you conclude from these ratios?
5. Calculate the projected price/earnings ratio and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company?
6. It is commonly recommended that the managers of a firm compare the performance of their firm to that of its peers. Increasingly, this is becoming a more difficult task.
Explain some of the reasons why comparisons of this type can frequently be either difficult to perform or produce misleading results.
Balance Sheets
Assets
Cash and equivalents
Short-term investments
Accounts receivable
Inventories
Total current assets
Net Fixed Assets
Total Assets
Liabilities and equity
Accounts payable
2018
$ 60
100
400
620
$1,180
2,900
$4,080
2018
$ 300
2019
$ 50
10
520
820
$1,400
3,500
$4,900
2019
$ 400
2020E
$ 60
50
530
660
$1,300
3.700
$5,000
2020E
$ 330
Transcribed Image Text:Week 2 Knowledge Check Financial Statements provide an overview of the company's operating results. Well-managed companies use their operating cash flows in different ways, including capital expenditures, acquisitions, dividend payments, stock repurchases, and saving for future needs. Which company made the right choices? Investors and managers use financial ratios to analyze financial statements. To this end, some of the techniques used are trend analysis, common size analysis, and percentage change analysis. In addition, the financial ratios of a company are tied together in the DuPont Equation. Finally, the ratios are used to compare with other companies in the same industry. Abiproffy company entered an expansion program and encounter a large loss in 2019, rather than the expected profit. As a result, its managers, directors, and investors are concerned about the firm's survival. James Brown was brought in as assistant to Abiproffy's chairman, who had the task of getting the company back into a sound financial position. Brown must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions to take. Your assignment is to help him answer the following questions. Provide clear explanations, not yes or no answers. Use the recent and projected financial information attached and answer the questions below. 1. Calculate the projected profit margin, operating profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios? 2. Calculate the projected inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover. How does Abiproffy's utilization of assets stack up against other firms in its industry? 3. Calculate the projected current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company's liquidity position and its trend? 4. Calculate the projected debt ratio, the debt-to-equity ratio, liabilities-to-assets ratio, earnings multiplier, times-interest-earned, and EBITDA coverage ratios. How does Abiproffy compare with the industry with respect to financial leverage? What can you conclude from these ratios? 5. Calculate the projected price/earnings ratio and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company? 6. It is commonly recommended that the managers of a firm compare the performance of their firm to that of its peers. Increasingly, this is becoming a more difficult task. Explain some of the reasons why comparisons of this type can frequently be either difficult to perform or produce misleading results. Balance Sheets Assets Cash and equivalents Short-term investments Accounts receivable Inventories Total current assets Net Fixed Assets Total Assets Liabilities and equity Accounts payable 2018 $ 60 100 400 620 $1,180 2,900 $4,080 2018 $ 300 2019 $ 50 10 520 820 $1,400 3,500 $4,900 2019 $ 400 2020E $ 60 50 530 660 $1,300 3.700 $5,000 2020E $ 330
Notes payable
Accruals
Total current liabilities
Long-term bonds
Total liabilities
Common stock (100,000 shares)
Retained earnings
Total common equity
Total liabilities and equity
Income Statements
Net sales
Cost of goods sold (Excluding depr.)
Depreciation
Other operating expenses
Earnings before interest and taxes (EBIT)
Less interest
Pre-tax earnings
Taxes (25%)
Net Income
Other Data
Per Share Information
EPS
DPS
Book Value Per Share
Additional Information
Dividends
Additions to retained earnings
Year-end shares outstanding
Year-end common stock price
Lease payments
Tax rate
50
200
2018
2019
$5,500
$6,000
4,300
4,800
290
320
350
420
$ 560
$ 460
68
108
$ 492
$ 352
88
123
$369
$ 264
Note: "E" denotes the "estimated forecast." Also, Abiproffy has no amortization.
M
$ 550
800
$1,350
1,000
1.730
$2,730
$4,080
Note: "E" denotes the "estimated forecast."
2018
$3.69
$0.90
$27.30
$90
$279
100
$50.00
$20
25%
250
240
$ 890
27
__1,100
$1,990
1,000
1,910
$2.910
$4.900
2019
$2.64
$0.84
$29.10
$84
$180
100
$30.00
$20
25%
2020E
$6,600
5,210
370
400
$ 620
_100
$ 520
130
$ 390
2020E
$3.90
$1.00
$32.00
$100
$290
100
$49.00
$20
25%
100
270
$ 700
1.100
$1,800
1,000
2.200
$3.200
$5,000
Transcribed Image Text:Notes payable Accruals Total current liabilities Long-term bonds Total liabilities Common stock (100,000 shares) Retained earnings Total common equity Total liabilities and equity Income Statements Net sales Cost of goods sold (Excluding depr.) Depreciation Other operating expenses Earnings before interest and taxes (EBIT) Less interest Pre-tax earnings Taxes (25%) Net Income Other Data Per Share Information EPS DPS Book Value Per Share Additional Information Dividends Additions to retained earnings Year-end shares outstanding Year-end common stock price Lease payments Tax rate 50 200 2018 2019 $5,500 $6,000 4,300 4,800 290 320 350 420 $ 560 $ 460 68 108 $ 492 $ 352 88 123 $369 $ 264 Note: "E" denotes the "estimated forecast." Also, Abiproffy has no amortization. M $ 550 800 $1,350 1,000 1.730 $2,730 $4,080 Note: "E" denotes the "estimated forecast." 2018 $3.69 $0.90 $27.30 $90 $279 100 $50.00 $20 25% 250 240 $ 890 27 __1,100 $1,990 1,000 1,910 $2.910 $4.900 2019 $2.64 $0.84 $29.10 $84 $180 100 $30.00 $20 25% 2020E $6,600 5,210 370 400 $ 620 _100 $ 520 130 $ 390 2020E $3.90 $1.00 $32.00 $100 $290 100 $49.00 $20 25% 100 270 $ 700 1.100 $1,800 1,000 2.200 $3.200 $5,000
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