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5.5. Eleanor's Computers is a retailer of computer products Using the financial dute pro that indicate potential problems and provide an explanation of possible causes of problems Industry Averages 2016 Financial Ratios 2014 2015 2016 1703 65 days 3.box Current ratio Quick ratio Average collection period Inventory turnover Fixed asset turnover Total asset turnover Debt ratio Times interest earned Gross profit margin Operating profit margin Net profit margin Return on total assets Return on equity 1.71X 0.92% 60 days 4.20X 3.20x 1.40X 59 20% 4.20X 25.00% 12.50% 6.10 8.54" 20.93% 165 0.99X 60 days 3.90X 3.33% 1.35 61.00 3.70X 23.00% 12.70 6.00% 8.10 20.74% 475X 22.50 12.50 8.91 22.28 Income Statement for Year Ended 12/31/16 Balance Sheet at 12/31/16 Sales Cost of goods sold Gross profit Operating expenses Operating profit Interest expense Earnings before tax Income tax (40%) Net Income $1,500,000 1,200,000 $ 300,000 100,000 $ 200,000 72,000 128,000 51,200 76 800 Cash Accounts receivable Inventory Current assets Fixed assets (net) Total Assets Accounts payable Notes payable Accrued liabilities Current liabilities Long-term debt Total liabilities Equity Total liabilities and equity $ 125,000 275.000 325.000 $ 725.000 $420,000 $1,145,000 $ 150,000 225,000 100,000 475.000 400,000 $ 875,000 270,000 $1,145,000 Question 5.5 n. Which of the following statements is correct concerning Eleanor's Computers liquidity? Eleanor's liquidity has improved over the period since both the current and quick ratios have increased from 2014 - 2016. Eleanor's liquidity has deteriorated over the period since both the current and quick ratios have decreased from 2014 - 2016. Eleanor's liquidity for 2016 as measured by the current and quick ratios is better than the industry averages for 2016. Eleanor's average collection period has decreased for 2016 and is better than the industry average. Question 15 0 / 1 poi Question 5.5 o. All of the following are true concerning Eleanor's capital asset efficiency except: The total asset turnover is only slightly weaker than the industry. The efficient management of fixed assets approximately offsets the poor inventory turnover. Capital asset efficiency is in good shape, as evidenced by an improving and above average fixed asset turnover. Capital asset efficiency has deteriorated, as evidenced by the decreasing and below average fixed asset turnover. Question 5.5 p. In reviewing the debt and times interest earned ratios for 2016, we can make which of the following assessments regarding Eleanor's Computers situation: A combination of too much debt and low profit is producing difficulty in covering interest payments, shown by times interest earned. The times interest earned ratio has increased which means that the company has more ease in meeting interest payments The company's debt ratio has decreased in 2016, an improvement over the prior year. The company's debt and times interest earned ratios are both below the industry averages which is positive. 0 / 1 point Question 17 Question 5.5 q, Which of the following statements is true regarding the profitability of Eleanor's computers? The operating profit margin has decreased from 2015 indicating poor control of operating costs. The gross profit margin has slipped due either to lack of cost controls for products sold, the need to sell products at discounts, or both. The gross profit margin has improved indicating that the company has been able to control product costs. The overall return, as measured by the net profit margin, has increased because of the combination of cost/pricing policies and better control of operating costs. Question 5.5 r. Using the Du Pont system, which of the following statements is true regarding the return on equity for Eleanor's Computers in 2016? Return on equity is still below the industry average but is trending upward The company's increased use of financial leverage has more than offset the decrease in profitability Although the low debt ratio decreased the return on equity, it also decreased risk. The return on total assets has increased and is above the industry average which has helped to increase return on equity. Question 19 0 / 1 poin 5.8 a. Which of the following statements is true comparing the liquidity of ABC and XYZ companies? XYZ generated less cash than ABC did from operations. ABC is more likely than XYZ to be able to meet its short-term cash needs based on its cash flow from operations. ABC is less liquid than XYZ because it has lower current, quick and cash flow liquidity. ABC is more liquid than XYZ because it has lower current, quick and cash flow liquidity. 5.8 b. Which of the following statements is true concerning the activity ratios of ABC and XYZ? Total asset turnover is the same for both firms with ABC showing better inventory efficiency and is better at managing accounts receivable and fixed assets than XYZ. Total asset turnover is the same for both firms with XYZ showing better inventory efficiency than ABC is also managing accounts receivable and fixed assets better than ABC. Total asset turnover is the same for both firms with XYZ showing better inventory efficiency than ABC, but ABC is managing accounts receivable and fixed assets better than XYZ. Total asset turnover is the same for both firms with ABC showing better inventory efficiency than XYZ, but XYZ is managing accounts receivable and fixed assets better than ABC. 5. 8 c. Using the leverage ratios for ABC and XYZ company, which of the following is correct? XYZ has a higher interest coverage than ABC indicating more difficulty in making interest payments as they come due. XYZ seems to have more problems meeting debt requirements than ABC since it has a higher cash flow adequacy ratio. ABC is only covering $0.43 on every dollar for capital expenditures, debt repayment, and dividends with cash generated from their operations. ABC has a lower times interest earned ratio than XYZ which is positive. Question 23 0 / 1 point 5.8 e. After calculating the P/E ratios for ABC and XYZ company, which of the following statements is correct? A lower value is being placed on XYZ compared to the value placed on ABC because it has lower cash flows from operations than ABC. A higher value is being placed on XYZ compared to the value placed on ABC perhaps because of its better cash flow from operations than ABC A higher value is being placed on ABC compared to the value placed on XYZ perhaps because of its better cash flows from operations. A higher value is being placed on XYZ compared to the value placed on ABC perhaps because of it;s better return on equity than ABC