9. Asset management ratios

Company stakeholders use asset management ratios to provide insights into:

The effectiveness of management to generate before-tax and after-tax profits using the firms assets

The firms use of financial capital, both borrowed and equity, to acquire assets, as well as the firms ability to pay the interest and dividends associated with these funds

The effectiveness of management in generating spendable sales dollars using the firms current and fixed assets

The effectiveness of management in providing ready funds to pay the firms short-term financial obligations as they become due

Johnny Appleseed Brewing Company (JABC) has a quick ratio of 2.00; $24,750 in cash; $13,750 in accounts receivable; some inventory; total current assets of $55,000; and total current liabilities of $19,250. In its most recent annual report, JABC reported annual sales of $300,000 and a cost of goods sold equal to 65% of annual sales. How many times is Johnny Appleseed Brewing Company (JABC) selling and replacing its inventory?

18.18x

0.35x

11.82x

13.002x

The inventory turnover ratio across companies in JABCs industry is 10.05. Based on this information, which of the following statements is true for Johnny Appleseed Brewing Company (JABC)?

Johnny Appleseed Brewing Company (JABC) is holding more inventory per dollar of COGS compared to the industry average.

JABC is holding less inventory per dollar of COGS compared to the industry average.

You are analyzing two companies that manufacture electronic toysIntelliGames Inc. and BrainGames Inc. IntelliGames was launched eight years ago, whereas BrainGames is a relatively new company that has only been in operation for the past two years. However, both companies have an equal market share with sales of $300,000 each. Youve gathered up company data to compare IntelliGames and BrainGames.

For the same period, the average sales for industry competitors was $765,000. 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, and the information follows:

Data Collected (in dollars)

	IntelliGames Inc.	BrainGames Inc.	Industry Average
Accounts receivables	$8,100	$11,700	$8,625
Net fixed assets	165,000	240,000	650,250
Total assets	285,000	375,000	703,800

Using the preceding information, complete the following statements.

1. A days sales outstanding, or average collection period, represents an efficient credit and collection policy. Between the two companies, is collecting cash from its customers faster than ; but both companies are collecting their receivables less quickly than the industry average.

2. BrainGames Inc.s fixed-asset turnover ratio is than that of IntelliGames Inc. This could be because BrainGames is a relatively new company, such that the acquisition costs and book values of its fixed assets is than the acquisition costs and book values of IntelliGamess net fixed assets.

3. IntelliGames total asset turnover ratio is , which is than the industrys average total asset turnover ratio. In general, a higher total asset turnover ratio indicates greater efficiency.