Q1
a. Use the following ratios to prepare a projected income statement, balance sheet, and statement of cash flows for year 3.
Sales growth......................................................................................................... 1.02%
Gross profit margin......................................................................................... 69.92%
Selling, general, and administrative expense/Sales.................... 39.28%
Depreciation expense/Prior-year PPE gross.................................. 12.14
Interest expense/Prior-year long-term debt.................................. 5.45%
Income tax expense/Pretax income..................................................... 29.88%
Accounts receivable turnover................................................................... 10.68
Inventory turnover.......................................................................................... 5.73
Accounts payable turnover........................................................................ 1.64
Taxes payable/Tax expense...................................................................... 50.33%
Total assets/Stockholders' equity (financial leverage)............ 2.06
Dividends per share........................................................................................ $1.37
Capital expenditure/Sales........................................................................... 5.91%
b. Based on your initial projections, how much external financing (long-term debt and/or stockholders' equity) will Coca-Cola need to fund its growth at projected increases in sales?
Q2
Refer to the financial statements of Campbell Soup Company
a. Compute the following liquidity measures for Year 10:
1. Current ratio
2. Acid-test ratio
3. Accounts receivable turnover (AR balance at end of Year 9 is $564.1.)
4. Inventory turnover (inventory balance at end of Year 9 is $816.0).
5. Days' sales in receivables
6. Days' sales in inventory
7. Conversion period (operating cycle).
8. Cash and cash equivalents to current assets.
9. Cash and cash equivalents to current liabilities.
10. Days' purchases in accounts payable.
11. Net trade cycle.
12. Cash flow ratio
b. Assess Campbell's liquidity position using results from (a).
c. For Year 10, compute ratios 1, 4, 5, 6, and 7 using inventories valued on a FIFO basis (FIFO inventory at the end of Year 9 is $904).
d. What are the limitations of the current ratio as a measure of liquidity?
e. How can analysis and use of other related measures (other than the current ratio) enhance the evaluation of liquidity?