#1

You are analyzing two companies that manufacture electronic toysLike Games Inc. and Our Play Inc. Like Games was launched eight years ago, whereas Our Play is a relatively new company that has been in operation for only the past two years. However, both companies have an equal market share with sales of $200,000 each. Youve collected company data to compare Like Games and Our Play. Last year, the average sales for all industry competitors was $510,000. As an analyst, you want to make comments on the expected performance of these two companies in the coming year. Youve collected data from the companies financial statements. This information is listed as follows: (Note: Assume there are 365 days in a year.)

Data Collected (in dollars)

	Like Games	Our Play	Industry Average
Accounts receivable	5,400	7,800	7,700
Net fixed assets	110,000	160,000	433,500
Total assets	190,000	250,000	469,200

Using this information, complete the following statements to include in your analysis.

a	Our Play has 14.24/9.86 days of sales tied up in receivables, which is much lower/higher than the industry average. It takes Our Play more/less time to collect cash from its customers than it takes Like Games.
b	Like Gamess fixed assets turnover ratio is lower/higher than that of Our Play. This is because Like Games was formed eight years ago, so the acquisition cost of its fixed assets is recorded at historic values when the company bought its assets and has been depreciated since then. Assuming that fixed assets prices (not book values) rose over the past six years due to inflation, Our Play paid a lower/higher amount for its fixed assets.
c	The average total assets turnover in the electronic toys industry is 1.09x/8.01x/2.86x/9.28x , which means that $1.09/$8.01/$2.86/$9.28 of sales is being generated with every dollar of investment in assets. A lower/higher total assets turnover ratio indicates greater efficiency. Both companies total assets turnover ratios are lower/higher than the industry average.

#2

Chilly Moose Fruit Producer has a total asset turnover ratio of 8.50x, net annual sales of $25 million, and operating expenses of $11 million (including depreciation and amortization). On its balance sheet and income statement, respectively, it reported total debt of $1.75 million on which it pays a 7% interest rate.

To analyze a companys financial leverage situation, you need to measure the firms debt management ratios. Based on the preceding information, what are the values for Chilly Moose Fruits debt management ratios?

Ratio	Value
Debt ratio	136.90% /47.62% /77.38% /59.52%
Times-interest-earned ratio	85.72x /114.29x /57.15x/ 205.72x

Influenced by a firms ability to make interest payments and pay back its debt, if all else is equal, creditors would prefer to give loans to companies with low/high times-interest-earned ratios (TIE).