Snider Corporation, Jones Corporation, Smith Corporation: financial ratios

Solution Preview

*** Remember, this service is not intended to be used as "homework completion, I am giving you the instructional assistance". Please add/detract and reword/rewrite in order to make this your own. I have provided a source for you to use. Feel free to add more sources if you would like. Thank you for allowing me to assist you. ****

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 ...