QUESTION: Based on the calculations on the charts below that I already filled in, I need to
Question:
QUESTION: Based on the calculations on the charts below that I already filled in, I need to know the following
1)Suppose HH doubles its sales as well as its inventories, accounts receivable, and common equity during the year. How would that information affect the validity of your ratio analysis?
2)What are HH's strengths and weaknesses, as revealed by this analysis?
Using the financial statements for HH Company below:
Sales | 1,607,500 |
Cost of goods sold | 1,392,500 |
Selling, general and administrative | 145,000 |
Earnings before interest and taxes (EBIT) | 70,000 |
Federal and state income taxes (40%) | 18,200 |
Net income | 27,300 |
HH Company Balance Sheet as of December 31, 20XX
Assets | 80,500 | Accounts Payable | 132,000 |
Accounts Receivable | 334,500 | Current portion of debt | 84,000 |
Inventories | 240,000 | Other current liabilities | 114,000 |
Total current assets | 655,000 | Total current liabilities | 330,000 |
Net fixed assets | 292,500 | Long-term debt | 256,500 |
Total assets | 947,500 | Total liabilities | 586,500 |
Common equity | 361,000 | ||
Total Liabilities Equity | 947,500 |
HH Company calculations below:
Return on equity | 7.56% | 9% |
Debt ratio | 61.90% | 55% |
Company Averages | Industry Averages | |
Current Ratio | 1.98 | 2.2 |
Days sales outstanding (based on 365-day year) | 76 days | 36 days |
Inventory turnover | 5.8 | 6.7 |
Fixed asset turnover | 5.5 | 12.1 |
Total assets turnover | 1.7 | 3.00 |
Return on sales | 1.7% | 1.2% |
Return on assets | 2.88% | 3.6% |
Financial management theory and practice
ISBN: 978-0324422696
12th Edition
Authors: Eugene F. Brigham and Michael C. Ehrhardt