1. Calculate XYZ's 2013 current and quick ratios based on the projected balance sheet and income statement data.
2. Calculate the 2013 inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover.
3. Calculate the 2013 debt-to-assets and times-interest-earned ratios.
4. Calculate the 2013 operating margin, profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE).
5. Calculate the 2013 price/earnings ratio, and market/book ratio.
6. Use the extended DuPont equation to provide a summary and overview of XYZ's financial condition as projected for 2013.
7. Use the following simplified 2013 balance sheet to show, in general terms, how an improvement in the DSO would tend to affect the stock price.
For example, if the company could improve its collection procedures and thereby lower its DSO from 45.6 days to the 32-day industry average without affecting sales, how would that change "ripple through" the financial statements (shown in thousands below) and influence the stock price?
- Accounts receivable $878 Debt $1,545
- Other current assets 1,802
- Net fixed assets 817 Equity 1,952
- Total assets $3,497 Liabilities plus equity $3,497
- First, we need to calculate XYZ's daily sales.
- Daily sales = Sales / 365
- Daily sales = $7,035,600 / 365
- Daily sales = $19,275.62
- Target A/R = Daily sales × Target DSO
- Target A/R = $19,276 × 32
- Target A/R = $616,820
- Freed-up cash =old A/R - new A/R
- Freed-up cash =$878,000 - $616,820
- Freed-up cash =$261,180
8. 5 points) Provide a brief summary or rationale of how these ratios are used, and why they are important.