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Reference no: EM13977151

Asset administration ratios are used to meacertain exactly how efficiently a firm maneras its assets.

You are watching: You are analyzing two companies that manufacture electronic toys

Remember, tbelow are 2 slightly various equations that deserve to be used to evaluate the management of a firm"s inventory. In either case, the inventory administration proportion puts the inventory balance in the denominator and also either its corresponding Sales worth or the equivalent Cost of Goods Sold (COGS) worth in the numerator. In the first (older) sales-based computation, the ratio identifies the number of sales dollars created with each dollar of inventory held. The second, more recent equation-which locations COGS in the numerator-compares the expenses of producing the firm"s goods through the amount of inventory organized. Don"t forgain that the components of COGS are straight materials, straight labor, and also the overhead associated via creating the firm"s products and services. Because of this, the COGS-based variation of the proportion compares the firm"s inventory through its expenses, whereas the Sales-based variation compares the inventory balance via the firm"s earnings and also revenues.

Now, think about the adhering to case:

General Forge and also Foundry Co. has a quick proportion of 2.00x, $34,875 in cash, $19,375 in accounts receivable, some inventory, total existing assets of $77,500, and total current liabilities of $27,125. The agency reported annual sales and also expense of items offered of $800,000 and $560,000, respectively, in the most current yearly report.

Over the previous year, General Forge and also Foundry Co. offered and relocation its inventory...(0.35x or 65.38x or 34.41x or 37.85x) ............ times this year (utilizing the sales-based inventory turnover ratio) and also.(43.36x or 24.09x or 33.73x or 21.20x) ................... times per year (utilizing the COGS-based ratio).

The sales-based inventory turnover proportion across carriers in the sector is 29.25x. Based on this indevelopment, which of the adhering to statements is true for General Forge and Foundry Co.?

(a) General Forge and Foundry Co. is holding more inventory per dollar of sales compared to the sector average.

(b) General Forge and also Foundry Co. is holding less inventory per dollar of sales compared to the market average.

You are analyzing 2 service providers that manufacture digital toys-Like Games Inc. and also Our Play Inc. Like Games was introduced eight years ago, whereas Our Play is a relatively brand-new company that has been in operation for just the past 2 years. However, both carriers have an equal industry share through sales of $800,000 each. You"ve gathered up firm data to compare Like Games and Our Play. Last year, the average sales for market competitors was $2,040,000. As an analyst, you desire to make comments on the expected performance of these 2 companies in the coming year. You"ve built up data from the companies" financial statements. This indevelopment is detailed as follows:

Documents Collected (in dollars)

Like Games

Our Play

Industry Average

Accounts receivable

21,600

31,200

23,000

Net addressed assets

440,000

640,000

1,734,000

Total assets

760,000

1,000,000

1,876,800

Using this information, finish the complying with statements to encompass in your analysis.

1. Our Play has....(14.24 or 9.86)............. days of sales tied up in receivables, which is much....(higher or lower)............... than the market average. It takes Our Play.........(much less or more)......... time to collect cash from its customers than it takes Like Games.

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2. Like Games’s fixed assets turnover proportion is (greater or lower).............. than that of Our Play. This is because Like Gamings was formed eight years back, so the acquisition expense of its solved assets is tape-recorded at historical worths once the firm bought its assets and has actually been depreciated given that then. Assuming that addressed assets prices (not book values) rose over the previous 6 years as a result of inflation, Our Play passist a..(better or lower).............. amount for its solved assets.

3. The average complete assets turnover in the electronic toys sector is 1.09x, which indicates that $1.09 of sales is being produced with eextremely dollar of investment in assets. A ..(greater or lower)...... full assets turnover proportion suggests higher performance. Both companies’ complete assets turnover ratios are...(greater or lower)...... than the sector average.