I would like to have the workings and explanations of the various ratios used in the case study (attached) to answer the questions. The answer should be descriptive enough to explain the pros and cons adequately.
Q1. Refer to AKP's financial statements. If she was a loan officer at the nearest bank would she be willing to lend this company $4,000,000 at 10% over a one-year period? Explain (Note that loan request is assumption is for short term)
Q2. Why is liquidity important for AKP's businesses?
Q3. Based on analyst's reports for the industry AKP Company operates, operating efficiency as it is measured by Total Asset Turnover ratio, has been estimated to be 1.2 times fort he year 2007 and 1.5 times for 2006. How the AKP Company's overall utilization of assets compares against these ratios? What is meant by the concept of 'activity' as it relates to turnover ratios in general? Explain
Q4. Assume, Return on Assets (ROI) for the industry had been calculated at 10% for each year. Given that AKP has recorded ROI of approx 15% in 2007 and 13.5% in 2006, what information is provided by AKP's ROI when compared to the industry's avg ROI? What do profitability ratios measure in a company in general? Explain.
Q6. Given AKP's ending levels of inventory, assess management's inventory performance during 2006 and 2007
Q7. Given AKP's operating cycle of 139 days in 2006 and 143 days in 2007, what is the impact of AKP's working capital? Should management focus on these indicators given that industry's operating cycle is recording constantly 90 days for the last 3 years?
Q8. Given AKP's net earnings per share evolution over the three years 2005-2007, explain the change as it probably relates to the market value of the Company's stock. Comment also on the Company's dividend pay-out policy during same period year. What are the possible explanations for AKP's dividend pay-out practice over the three years in question? Explain.
AKP company consolidated statement income statement for the years ended December 31st (attached).© BrainMass Inc. brainmass.com October 25, 2018, 9:00 am ad1c9bdddf
Short Term Liquidity
I would like to have the workings and explanations of the various ratios used in answering the question. The answer should be descriptive enough to explain the pros and cons adequately.
Please see the attached file.
The loan rate is below the Net Profit , if the firm wants to expand the operations and can still maintain the NP above the Loan rate . Would you advise going for loan.
Secondly Debt to Equity Ratio has not been discussed. which could be an important factor.
Yes as Net profit margin is around 15% which is greater than the borrowing rate of 10%.
Debt to equity ratio is considered for long term loan but our case is of short term loan. Hence one should see the liquidity ratio.
A/R ratio ...
Short term liquidity is examined for financial statements is examined. The AKP's business importance of liquidity is given.
Short Term Solvency Ratios
HANDOUT: Useful Financial Ratios (see attachment)
SHORT-TERM SOLVENCY RATIOS (Liquidity Ratios)
Current ratio = Current assets ÷ Current liabilities
Quick ratio = (Current assets - Inventory) ÷ Current liabilities
Total asset turnover = Total operating revenues ÷ Average total assets
Receivables turnover = Total operating revenues ÷ Average receivables
Average collection period = Days in period ÷ Receivables turnover
Inventory turnover = Cost of goods sold ÷ Average inventory
Days in inventory = Days in period ÷ Inventory turnover
FINANCIAL LEVERAGE RATIOS
Debt ratio = Total debt ÷ Total assets
Debt-equity ratio = Total debt ÷ Total equity
Equity multiplier = Total assets ÷ Total equity
Interest coverage = Earnings before interest and taxes ÷ Interest
Net profit margin = Net income ÷ Total operating revenue
Operating profit margin = Earnings before interest and taxes ÷ Total operating revenues
Net return on assets = Net Income ÷ Average Total Assets
Gross return on assets = Earnings before interest and taxes ÷ Average total assets
Net[Gross] Return on assets (ROA) = Net[Gross] Profit margin × Asset Turnover
Return on equity (ROE) = Net income ÷ Average stockholders' equity
Payout ratio = Cash dividends ÷ Net Income
Retention ratio = Retained earnings ÷ Net Income = 1 - Payout ratio
MARKET VALUE RATIOS
Price-to-earnings (P/E) ratio = Market price per share ÷ Earnings per share
Dividend yield = Dividend per share ÷ Market price per share
Market-to-book (M/V) ratio = Market price per share ÷ Book value per share
Tobin's Q ratio = (Market value of debt + equity) ÷ Replacement value of total assets
Net profit ratio x Total asset turnover x 1+ Debt ratioView Full Posting Details