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 collected company data to compare Like Games and Our Play. Last year, the average sales for all 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: (Note: Assume there are 365 days in a year.) Data Collected (in dollars) Like Games Our Play Industry Average Accounts receivable 5,400 7,800 7,700 Net fixed assets 110,000 160,000 433,500 Total assets 190,000 250,000 469,200 Using this information, complete the following statements to include in your analysis. than the industry average. It takes Our Play 1. Our play has days of sales tied up in receivables, which is much time to collect cash from its customers than it takes Like Games. than the industry average. It takes Our Play 1. Our Play has days of sales tied up in receivables, which is much time to collect cash from its customers than it takes Like Games. 2. 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 historic 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. 3. The average total assets turnover in the electronic toys industry is which means that 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. Red Snail Satellite Company has a total asset turnover ratio of 3.50x, net annual sales of $40 million, and operating expenses of $18 million (including depreciation and amortization). On its current balance sheet and income statement, respectively, it reported total debt of $2.5 million, on which it pays 7% interest on its outstanding debt. To analyze a company's financial leverage situation, you need to measure the firm's debt management ratios. Based on the preceding information, what are the values for Red Snail Satellite's debt management ratios? (Note: Do not round intermediate calculations.) Ratio Value Debt ratio Times-interest-earned ratio Red Snail Satellite Company raises around from creditors for each dollar of equity. Influenced by a firm's ability to make interest payments and pay back its debt, if all else is equal, creditors would prefer to give loans to companies with times-interest-earned ratios (TIE). Red Snail Satellite Company has a total asset turnover ratio of 3.50x, net annual sales of $40 million, and operating expenses of $18 million (including depreciation and amortization). On its current balance sheet and income statement, respectively, it reported total debt of $2.5 million, on which it pays 7% interest on its outstanding debt. To analyze a company's financial leverage situation, you need to measure the firm's debt management ratios. Based on the preceding information, what are the values for Red Snail Satellite's debt management ratios? (Note: Do not round intermediate calculations.) Ratio Value Debt ratio Times-interest-earned ratio Red Snail Satellite Company raises around from creditors for each dollar of equity. Influenced by a firm's ability to make interest payments and pay back its debt, if all else is equal, creditors would prefer to give loans to companies with times-interest-earned ratios (TIE)
