Question

Asset management ratios are used to measure how effectively a firm manages its assets, by relating the amount a firm has invested in a particular type of asset (or group of assets) to the amount of revenues the asset is generating. Examples of asset management ratios include the average collection period (also called the days sales outstanding ratio), the inventory turnover ratio, the fixed asset turnover ratio, and the total asset turnover ratio Consider the following case: Crawford Construction has a quick ratio of 2.00x, $36,225 in cash, $20,125 in accounts receivable, some inventory, total current assets of $80,500, and total current liabilities of $28,175. The company reported annual sales of $100,000 in the most recent annual report. Over the past year, how often did Crawford Construction sell and replace its inventory? O 4.14 x 4.55 x 2.86x 8.01 x The inventory turnover ratio across companies in the construction industry is 4.55x. Based on this information, which of the following statements is true for Crawford Construction? O Crawford Construction is holding less inventory per dollar of sales compared to the industry average O Crawford Construction is holding more inventory per dollar of sales compared to the industry average 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 $100,000 each. You've collected company data to compare Like Games and Our Play. Last year, the average sales for all industry competitors was $255,000. 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: Data Collected (in dollars) Accounts receivable Net fixed assets Total assets Like Games 2,700 55,000 95,000 Our Play 3,900 80,000 125,000 Industry Average 3,850 216,750 234,600 Using this information, complete the following statements to include in your analysis days of sales tied up in receivables, which is much than the industry average. It takes Our Play 1. Our Play has time to collect cash from its customers than it takes Like Games. more than that of Our Play. This is because Like Games was formed eight years ago, so the 2. Like Games's fixed assets turnover ratio is 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 assets. amount for its fixed 3. The average total assets turnover in the electronic toys industry is 1.09x, which means that $1.09 of sales is being generated with every dollar of investment in assets. A are total assets turnover ratio indicates greater efficiency. Both companies' total assets turnover ratios than the industry average

Answer 1

Answer:

1. 4.14X

for the other parts of this question, i had to solve for the solution and fill it into the blank parts of the question.

Explanation:

part 1 solution:

annual sales - cash + account receivable

= 80500 - (36225 + 20125)

= 80500 - 56350

inventories = 24150

inventory turnover ratio = 100000/24150

= 4.14X

what is true for crawford is that crawford construction is holding more inventories per dollar compared to the industry average. we compared 4.14x with 4.55x to arrive at this conclusion.

part 2 solution:

Days sales outstanding  = account receivable / average sales per day

like games = 2700/(100000/365)

= 9.855

our play = 3900/(100000/365)

= 14.235

industry average = 3850/(255000/365)

= 5.5

these values would be used to fill in this part of the question

our play has 14.235 days of sales which is  much more than industry average. it is obvious that 14.235 is much greater than 5.5. It takes our play more time to time to collect colect cash from its customers than like games.   this is as our play has 14.235 days and like games has 9.855 days.

fixed asset turn over ratio = sales/ net fixed assets

like games = 100000/55000

= 1.81X

our play = 100000/80000

= 1.25X

like games has fixed asset that is higher than that of our play. from the calculation above, 1.81X is greater than 1.25X. This is as like games was created 8 years ago.

Our Play paid a higher amount for its fixed assets.

part 3 solution;

total assets turn over ratio = sales / total assets

for industry average = 225000/234600 = 1.09X

for like games = 100000/95000 = 1.05X

For our play = 100000/125000 = 0.8X

A higher turn over ratio shows greater efficiency. Both companies have lower total turnover than the industry average. we can see obviously that 1.09X is greater than 1.05X and 0.8X.

thank you!