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Comparing Industry Ratios and Turnover

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Trademark corps financial manger collect the following information for its peer group to compare its performance against that of its peers.
Ratios trademark peer group
dso 33.5 days 27.9 days
total assets turnover 2.3 3.7
inventory turnover 1.8 2.8
quick ratio .6 1.3

a. Explain how trademark is doing relative to its peers.
b. How do the industry ratios help trademark management?

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a.
- DSO is Days of Sales Outstanding; a low number would reflect fewer number of days for the company to collect on Account Receivables. A higher number is an indicator that the company is selling to customers on credit and it's taking longer to collect from the sale.
-Trademark's 33.5 days compared to 27.9 for their peers may be a red flag, particularly as many companies require payment within 10 days, and after 10 days, apply interest which continues to accrue until it is paid. It is typically in a company's best interest to have a quick turn-around on AR, so that they have cash to operate and grow their business.

Assets Turnover is the Avg. of total assets and revenue generated. Asset turnover is generally looked at quarterly or annually and shows how ...

Solution Summary

Industry ratios and turnover are defined, along with examples and comparisons.

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Calculate a few ratios and compare Reed's results with industry averages. What do these ratios indicate?

Liquidity Ratios Industry
Current ration 2.7
Quick ratio 1.6
Receivables turnover 7.7
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Total asset turnover 1.9
Inventory turnover 7.0
Payable turnover 15.1

Profitability Ratios
Gross profit margin 33.0
Net profit margin 7.8
Return on common equity 25.9

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