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# Snider Corporation, Jones Corporation, Smith Corporation: financial ratios

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Please do problems 33 and 34.

Compute financial ratios

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As for Jones Corporation and Smith Corporation (in an attached Word document), please read the scenario and accompanying calculations that apply both to Jones and Smith Corp. You will be able to derive your calculations from the following.

Snider Corp is attached as an Excel document.

A COMPREHENSIVE VIEW

*** If the company reduces its receivables without adversely affecting sales, what effect should this have on the company's cash position (1) in the short run and (2) in the long run? ***

Short run: Cash will increase as inventory purchases decline as receivables are reduced.

Long run: Company is likely to take steps to reduce its cash holdings and increase its EVA.

*** Which ratios would explain whether a firm's customers pay more or less promptly than those of its competitors? ***

1) A/R Turnover which is:
Net Credit Sales/Average Net A/R

This measures the ability to collect cash from credit customers

2) Days' sales in receivables which is:
Average Net A/R / One Day's Sales

3) A measure of the average number of days that a company takes to collect revenue after a sale has been made. A low DSO number means that it takes a company fewer days to collect its accounts receivable. A high DSO number shows that a company is selling its product to customers on credit and taking longer to collect money.

Days sales outstanding are calculated as:
AR/Total Credit Sales ...

#### Solution Summary

The solution shows the details of the calculation of 13 common financial ratios for Snider, Jones and Smith Corporations. For Jones and Smith, the ratio analysis is used to respond to several questions about extension of credit and purchase of stock.

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