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Aplia: Student Questionx re https://courses.aplia.com/af/ eQuiz&quiz; probGuid-ONAPCOAB010100000041 You are analyzing two companies that manufacture electronic toys-Like Games Inc. and Our Play Inc. Like Games was launched eight years ago, whereas Our Play is a relatively new compary that has been in operation for only the past two years. However, both companies have an sales for all industry competitors was $1,785,000. As an analyst, you want to make cormments on the expected performance of these two companies in the coming year. You've collected data from the companies' financial statenents. This information is listed as follows: Data Collected (in dollars) Accounts receivable Net fixed assets Total assets Like Games 18,900 385,000 Our PlayIndustry Average 26,950 1,517,250 1,642,200 27,300 560,000 875,000 Using this information, complete the following statements to include in your analysis. 1. Our Play has time to coilect cash from its customers than it takes Like Games 2. Like Games's fixed assets turnover ratio is scquisition cost of its fixed assets is recorded at historic values when the company bought its assets and has been depreciated since then. days of sales tied up in receivables, which is much than the ustry average. It takes Our Play than that of Our Play, This is because Like Games was formed eight years ago, so the Assuming that fixed assets prices (not book values) rose over the past six years due to inflation, Our Play paid a amount for its foed 3. The average total assets turnover in the electronic toys industry is 1.09%, which means that $1.09 of sales is being generated with every dollar of investment in assets. A total assets turnover ratio indicates greater efficiency. Both companies total assets turnover ratios than the industry average Continue without savingExplanation / Answer
1. Days Sales Outstanding (DSO) Ratio = Accounts receivable / (Annual sales / 365 days)
DSO is measure of average number of days that it takes a company to collect payment after a sale has been made.
For both the companies and industry, DSO is:
Our Play = 27,300/(700,000/365 days) = 14.235 days
Like Games = 18,900/(700,000/365 days) = 9.855 days
Industry = 26,950/(1,785,000/365 days) = 5.511 days
Hence, the statement will be filled in as:
Our Play has 14.235 days of sales tied up in receivables, which is much higher than the industry average. It takes Our Play more time to collect cash from its customers than it takes Like Games.
2. Fixed Asset Turnover = Net Sales/Average Total Fixed Assets
This ratio indicates how efficiently the business is using its fixed assets to generate sales.
Like Game's fixed asset turnover ratio = (700,000/385,000) = 1.82
Our Play's fixed asset turnover ratio = (700,000/560,000) = 1.25
If there is inflation, the company which was founded later (Our Play) will pay higher prices for fixed assets, since thr price would increase year on year.
Hence, the statement will be filled in as:
Like Game's fixed assets turnover ratio is HIGHER than that of Our Play. This is because Like Games was formed eight years ago, so the acquisition cost of its fixed assets is recorded at historic values when the company bought its assets and has been depreciated since then. Assuming the fixed assets prices (not book value) rose over the past six years due to inflation, Our Play paid a HIGHER amount for its fixed assets.
3. Total Asset Turnover = Sales/Total Assets
The Asset Turnover ratio can often be used as an indicator of the efficiency with which a company is deploying its assets in generating revenue.
Like Game's total asset turnover ratio = (700,000/665,000) = 1.05
Our Play's total asset turnover ratio = (700,000/875,000) = 0.80
Hence, the statement will be filled in as:
The average total asset turnover in the electronic toys industry is 1.09x, which means that $1.09 sales is being generated with every dollar of investment in assets. a HIGHER total assets turnover ratio indicated greater efficiency. Both companies' total assets turnover ratios are LOWER than the industry average.
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