1. Complete the table below by calculating the missing performance measures for the Illini Tap. Calculate liquidity and solvency measures for 2013 and 2014. Note: the profitability, efficiency, and repayments measures can be calculated only for 2014 operations
Performance Measures for the Illini Tap
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Year End
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2013
|
2014
|
|
Current Ratio
|
|
|
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Working Capital
|
|
|
|
Working Capital Ratio
|
|
|
|
|
|
|
Debt-to-Asset Ratio
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|
|
|
Debt-to Equity Ratio
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|
|
|
Equity-to-Asset Ratio
|
|
|
|
|
|
|
Return on Assets
|
n/a
|
|
|
Return on Equity
|
n/a
|
|
|
Operating Profit Margin
|
n/a
|
|
|
|
|
|
Asset Turnover Ratio
|
n/a
|
|
|
|
|
|
Repayment Capacity
|
n/a
|
$116,117
|
|
Repayment Margin
|
n/a
|
$56,177
|
|
Coverage Ratio
|
n/a
|
1.77
|
2. Is the Illini Tap liquid? Is the bar solvent? Has the liquidity or solvency position of the bar changed dramatically throughout 2014? Do any of the liquidity or solvency measures indicate potential trouble for the bar? Provide a brief discussion for your answers
3. What does the repayment capacity represent? What does the repayment margin represent? Interpret the term debt and capital lease coverage ratio for the Illini Tap.
4. Using the table below, briefly perform a DuPont Analysis comparing the ROA and ROE of the Illini Tap to the average for bars in Illinois. Does the Illini Tap use its assets more or less efficiently than the average IL bar? Does the Illini Tap generate more or less profit per dollar of revenue than the average IL bar? How does the Illini Tap's use of debt financing compare to the average bar in IL?
|
Company/Industry
|
ROE
|
OPM
|
ATR
|
ROA
|
LM
|
Unlevered
ROE
|
|
Illini Tap
|
|
|
|
|
|
|
|
Average for IL Bars
|
20%
|
20%
|
70%
|
14%
|
1.67
|
12%
|
5. What are the interpretations of the "operational ratios?" What is the sum of the operational ratios and why must this be the case?
6. Use the information below to calculate the ROE for Vandelay Industries using the following interest rates (cost of debt). SHOW YOUR WORK.
6% Vandelay Industries Information
8% Total Assets: 1,000,000
10% Debt-to-Equity Ratio (D/E): 1.5
12% ROA: 9.0%
7. Why is the ROE greater than the ROA if the cost of debt is less than the ROA? Why is the ROE less than the ROA if the cost of debt is greater than the ROA? Why does the ROE equal the ROA if the cost of debt is equal to the ROA?