Question
This project is designed to teach the student how to read and comprehend a firm's financial statements and overall performance by understanding financial ratios. Select
This project is designed to teach the student how to read and comprehend a firm's financial statements and overall performance by understanding financial ratios. Select two companies that are in a similar line of business and find their balance sheets and income statements. Compute the following principal financial ratios and compare and contrast the companies based on your data. Explain which one you would prefer to invest in and why.
a.Return on capital
b.Return on equity
c.Operating profit margin
d.Days in Inventory
e.Debt ratio
f.Times-interest earned
g.Current ratio
h.Quick ratio
i.Return on assets
j.Inventory turnover ratio
k.Long-term debt ratio
l.Cash coverage ratio
m.Receivables turnover ratio
n.Sales to assets ratio
The two companies chose were google and microsoft
INPUT DATA:
Old New
Annual Data:
Sales $3,000,000 $3,000,000
Variable cost ratio 70.0% 70.0%
Variable cost $2,100,000 $2,100,000
Collection costs $150,000 $150,000
Bad debt percent 5.0% 5.0%
DSO--discount customers 0 0
DSO--nondiscount customers 60 60
Cash discount 0.0% 0.0%
% discount customers 0.0% 0.0%
% nondiscount customers 100.0% 100.0%
Required rate of return, r 11.0% 11.0%
Daily Data (360 days):
Sales $8,333.33 $8,333.33
Collection--discount cust. $0.00 $0.00
Collection--nondiscount cust. $7,916.67 $7,916.67
Variable cost ($5,833.33) ($5,833.33)
Collection costs ($416.67) ($416.67)
Required rate of return, r/360 0.0306% 0.0306%
KEY OUTPUT:
Net present value $1,522.87 $1,522.87
MODEL GENERATED DATA:
Cash Flows of Existing Policy:
Outflow on Day 0 ($6,250.00)
Inflow on Day 0 $0.00
Inflow on Day 60 $7,916.67
Cash Flows of Proposed Policy:
Outflow on Day 0 ($6,250.00)
Inflow on Day 0 $0.00
Inflow on Day 60 $7,916.67
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started