Southeast Systems has the following balance sheet and the income statement. The company had 10 million shares of common stock outstanding and its market price of the common stock was $78 at the end of 2014. Make sure the unit is in million dollars. (unit: $ in millions) Southeast Systems Balance Sheets 2013 2014 2013 2014 Cash $50 $100 Accounts payable $450 $500 Accounts receivable 600 700 Notes payable 300 400 Inventory 500 550 Long-term debt 650 650 Net fixed assets 1,000 1,000 Common equity 300 300 Retained earnings 450 500 Total Assets $2,150 $2,350 Total Liabilities & Owner’s Equity $2,150 $2,350 Income Statement 2014 Sales $2,370 Cost of goods sold 2,070 Depreciation 200 EBIT 100 Interest expenses 20 Taxable income 80 Taxes 28 Net income $52 Dividends $2 (1) What is the value of the days in receivables for 2014? (2) What is the value of the total asset turnover (TATO) for 2014?
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
Southeast Systems has the following
(unit: $ in millions)
|
Southeast Systems Balance Sheets |
|||||
|
|
2013 |
2014 |
|
2013 |
2014 |
|
Cash |
$50 |
$100 |
Accounts payable |
$450 |
$500 |
|
Accounts receivable |
600 |
700 |
Notes payable |
300 |
400 |
|
Inventory |
500 |
550 |
Long-term debt |
650 |
650 |
|
Net fixed assets |
1,000 |
1,000 |
Common equity |
300 |
300 |
|
|
|
|
|
450 |
500 |
|
Total Assets |
$2,150 |
$2,350 |
Total Liabilities & Owner’s Equity |
$2,150 |
$2,350 |
|
Income Statement |
|
|
|
2014 |
|
Sales |
$2,370 |
|
Cost of goods sold |
2,070 |
|
|
200 |
|
EBIT |
100 |
|
Interest expenses |
20 |
|
Taxable income |
80 |
|
Taxes |
28 |
|
Net income |
$52 |
|
Dividends |
$2 |
(1) What is the value of the days in receivables for 2014?
(2) What is the value of the total asset turnover (TATO) for 2014?
Days sales outstanding (DSO) is a measure of the average number of days that it takes a company to collect payment after a sale has been made. DSO is often determined on a monthly, quarterly or annual basis.
Formula for Days sales outstanding is as follows,
DSO = (Accounts Receivables ÷ Total Credit Sales) × Number of Days
So, putting values into the formula,
DSO = ( 700 ÷ 2370 ) × 360
= 106 Days
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