Recal that Total Arets = Total Liabilities and Equery: Mathematically, total liabilities and equity is equal to Plugging in the relevant values for total liabilities and equity, current liabilities, and equity (calculated using the previous identify) and then solving for long-term debt, yields a long-term debt of Return on assets (ROA) is equal to the product of profit margin multiplied by total asscts turnover, which is equivalent to . Plugging in the relevant values for net income and total assets yields an ROA of approximately Recall the following identity: Current Assets = Cash and equiblents + Accowents Receivable + Inventories The quick rabio is equal to _. Plugging in the relevant values for current assets, current liabilities, and inventories (calculated using the previous identity yields a quick ratio of approximately Suppose that Niles could reduce its DSO from 18.25 to 12 . Given the formula for DSO from the video, as well as the same annual sales of $3,750,000, the new value accounts receivable (associated with the new DSO) must be , all else equal. The change (or the absolute value of the difference between the original and new values) in accounts receivable represents an amount of approximately in cash generated. As a result of the stock buy back, the ROA and ROE both Suppose one firm has borrowed significant funds and bankruptcy appear imminent, while another firm has not borrowed very much cash and has very tittle chance of bankruptcy. Which of the following categories of ratios would likely be most appropriate for comparing these companies in this scenario? Inventory tumover ratios Market value ratios Debt management ratios Asset management ratios Now it's time for you to practice what you've learned. Suppose that you are given the following data for Niles Company: Note: The data and colculations are based on a 365 -day year. Fil in the tabile with the appropriate values. (Hint: Use the formulas you learned in the video and exercises in the previous stage of the problem.) Suppose Niles uses the cash generated by the lower DSO to buy back common stock at book value, thus reducing common equity. As a result of this new, lower, DSO, total debt debe/total capital ratio must and total capital - This means that the total Suppose that you are given the foliowing data for Niles Company Note: The data and calculations are basod on a 365-day year. The current ratio is equal to and then solving vieids a current assets value of - Plugging in the relevant values for the current ratio and current liabilities, - Adding fixed assets to current assets yields a value of total assets of The days sales outstanding (DSO) ratio is equal to and sales, and then solving yieids an accounts receivable balance of - Plugging in the relevant values for the DSO ratio Return on equity (ROE) is to approximately Plugging in the relevant values for ROE and net income yields a value of total common equity of Fill in the table with the appropriate values. (Hint: Use the formulas you learned in the video and exerases in the previous stage of the problem.) Hint: Recall that Current Assets = Cash ard Equivalents + Accounts Reccivable + Imventories. Hint: Recall that Total Liabilities and Equity = Tolal Assets, Long term debt is Suppose that Niles could reduce its 050 from 18.25 to 12 , and use the cash that was generated to buy back common stock at book value. Use the table to indicate the change in accounts recevable, ROA ROE, and fotal debtitotal capital ratio
