Asset management ratios

Asset management ratios are used to measure how effectively a firm manages its assets.

Consider the following case:

Payables for Tantium Drilling Inc. as of December $31,2015,$ were $$70$ million. During that same period, annual operating costs, or cost

of goods sold $($COGS$),$ were $$2,889\mathrm{.}5$ million.

Based on this information, what would be the average payable period $($APP$)$ in days?

$12$ days

$6$ days

$14$ days

$9$ days

You are analyzing two companies that manufacture electronic toys$-$Like 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. You've gathered up company data to compare Like Games and Our Play. Last year, the average sales for 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.

You've collected data from the companies' financial statements. This information is listed as follows:

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

Our Play has

days' sales tied up in receivables, which is much

than the industry average. It takes Our Play

time

to collect cash from its customers than it takes Like Games.

Like Games's fixed assets turnover ratio is

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 historical 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

amount for its fixed assets.

The average total assets turnover in the electronic toys industry is $1\mathrm{.}09$ times, which means that $$1\mathrm{.}09$ of sales is being generated with every dollar

of investment in assets. A

total assets turnover ratio indicates greater efficiency. Both companies' total assets turnover ratios are

than the industry average.