The objective is to utilize ratio analysis to make financial decisions.

We learned that ratios are used extensively in financial management to help determine the overall financial health of an organization and its worthiness for investment. Ratios are basically performance indicators that measure management's overall effectives in managing a company. They are a good way to evaluate the operating performance of a firm.

There are many ratios that are available to managers for measuring performance. Many of these ratios have several permutations or slight variation differences. However, they all help to tell a story about the performance of a company. It is important to note that the results are not an end in themselves. They are simply an additional source of information to stimulate questions, encourage further investigation, and generate additional analysis with the ultimate goal of better economic analysis for improved managerial decisions.

• How would you approach problem 3-37 (Provided Below) and what formulas using the Excel template provided found uploaded below please?
• Please explain (a. To which company would you, as cdi manager for a supplier, approve the extension of short-term trade credit and why?).
• Please explain (b. In which one would you buy stock and why?).

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Solution Problem 3-37 Instructions Enter formulas to calculate the following ratios. If possible, use cell ref U so a 360 day your. Jones and Smith Comparison One way of analyzing the situation for each company is to compare in those ratios which would be most important to a supplier or short-term Jones Corp. Smith Corp. Profit margin FORMULA FORMULA Return on assets FORMULA FORMULA Return on equity FORMULA FORMULA Receivable turnover FORMULA times FORMULA times Average collection period FORMULA days FORMULA days Inventory turnover FORMULA times FORMULA times Fixed asset turnover FORMULA times FORMULA times Total asset turnover FORMULA times FORMULA times Current ratio FORMULA times FORMULA times Quick ratio FORMULA times FORMULA times Dobl to total aspots FORMULA FORMULA Times interest earned FORMULA times FORMULA times Fixed charge coverage FORMULA FORMULA times a. To which company would you, as credit manager for a supplier, approve the extension of (short-term) trade credit? Why? b, In which one would you buy stock? Why? Problem 3-37 + Ready 7x Accessibility: InvestigateGiven the financial statements for Jones Corporation and Smith Corporation: a To which company would you, as credit manager for a supplier, approve the extension of (short-term) trade credit? Why? Compute all ratios before answering. b. In which one would you buy stock? Why? JONES CORPORATION Current Assets Liabilities Cash $20,000 Accounts payable $100.000 Accounts receivable 80,000 Bonds payable (long-term) 80 000 Inventory 50,000 Long-Term Assets Stockholders Equity Fixed Assets $500,000 Common stock $150,000 Less: Accumulated Depreciation (150,000) Paid-in capital 70,000 Net fixed assets" 350.000 Retained earnings 100 000 Total assets $500.000 Total liabilities and equity $500 000 Sales (on credit) $1,250,000 Cost of goods sold 750 000 Gross profit $500,000 Selling and Administrative expenset 257,000 Less: Depreciation expense 50.000 Operating Profit $103,000 Interest expense 8.000 Earnings before taxes $185,000 Tax expense 92 500 Net Income 12 500 *Use not fixed assets in computing fixed asset turnover. t Includes $7,000 in lease payments. SMITH CORPORATION Current Assets Liabilities Cash $35,000 Accounts payable $75.000 Marketable securities 7,500 Bonds payable (long-term) 210 000 Accounts receivable 70,000 Inventory 75,000 Long-Term Assets Stockholders' Equity Fixed Assets $500,000 Common stock $75 000 Loss: Accumulated Depreciation (250,000) Pald-in capital 30 010 Not fixed assets" 250,000 Retained earnings 47 500 Total misots $437,500 Total liabilities and equity $497 500 Sales ( on credit) $1,000,000 Cost of goods sold 600 000 Gross profit $400,000 Selling and Administrative expenset 224,000 Loss: Depreciation expense 50.000 Operating Profit $126,000 Interest expense 21,000 Earnings before taxes $105,000 Tax expense 52 500 Net Income $52,500 "Line ret fland meets in computing fiand mass turnover. Problem 3-37 +