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    Inventory and Financial Ratios

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    16. Suppose your firm receives a $5million order on the last day of the year. You fill the order with $2 million worth of inventory. The customer picks up the entire order the same day and pays $1 million upfront in cash; you also issue a bill for the customer to pay the remaining balance of $4 million within 30 days. Suppose your firm's tax rate is 0% (i.e., ignore taxes).

    Revenues
    increase by $3 million
    increase by $4 million
    increase by $5 million
    increase by $1 million
    decrease by $2 million

    Earnings
    increase by $3 million
    increase by $4 million
    increase by $5 million
    increase by $1 million
    decrease by $2 million

    Receivables
    increase by $3 million
    increase by $4 million
    increase by $5 million
    increase by $1 million
    decrease by $2 million

    Inventory
    increase by $3 million
    increase by $4 million
    increase by $5 million
    increase by $1 million
    decrease by $2 million
    Cash
    increase by $3 million
    increase by $4 million
    increase by $5 million
    increase by $1 million
    decrease by $2 million

    12. In July 2005, American Airlines (AMR) had a market capitalization of 2.3 billion, debt of $14.3 billion and cash of $3.1 billion. American Airlines had revenues of $18.9 billion. British Airways, (BAB) had a market capitalization of $5.2 billion, debt of $8.0 billion, cash of $2.9 billion and revenues of $13.6 billion.

    Market capitalization-to-revenue ratio for American Airlines
    0.71
    0.38
    0.76
    0.12

    Market capitalization-to-revenue ratio for British Airways

    0.71
    0.38
    0.76
    0.12

    Enterprise value-to-revenue ratio for American Airlines
    0.71
    0.38
    0.76
    0.12

    Enterprise value-to-revenue ratio for British Airways
    0.71
    0.38
    0.76
    0.12

    Market capitalization-to-revenue ratio for American Airlines
    0.71
    0.38
    0.76
    0.12

    © BrainMass Inc. brainmass.com December 15, 2022, 7:44 pm ad1c9bdddf
    https://brainmass.com/business/inventory-management/inventory-and-financial-ratios-244722

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    Solution Summary

    This solution explains how to measure revenues, earnings, receivables, inventory, and cash changes based on a transaction. This solution also explains how to calculate market cap-to-revenue and enterprise value-to-revenue

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