Chapeer 13 Analyting and Interprecing Financial Sutement an acceptable acid-test
ID: 2520930 • Letter: C
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Chapeer 13 Analyting and Interprecing Financial Sutement an acceptable acid-test ratio. The ratio for Apple is also less than the 0.9 industry norm; bow ever, we are not concerned. As with analysis of the current ratio, we need to consider other fac tors. For instance, affects its working capital requirements. This implies that analysis of short-serm liquidity should also include an analysis of receivables and inventories, which we consider next Accounts Receivable Turnover We can measure how frequendly a company converts its receivables into cash by computing the accoants receivable turnover. This ratio is defined as follows (see Chapter 7 for additional explanation) Net sales Average accounts receivable, net Accounts receivable turnover Short-term receivables from customers are often included in the denominator along-ith ac- counts receivable. Also, accounts receivable turnover is more precise if credit sales are used for the numerator, but external users generally use net sales (or net revenues) because information h-.So--P* about credit sales is typically not reported. Apple's 2012 accounts receivable turnover is com- puted as follows (S millions). s etan $156,508 ($5,369 + S10,930)/2 a 19.2 times Google 3 Apple's value of 19.2 exceeds that of both Google's 7.5 and Samsung's 7.9.Accounts receivable turnover is high when accounts receivable are quickly collected. A high turnover is favorable Point: Ending CCos e because it means the company need not commit large amounts of funds to accounts receivable. e wnd for the avarage balance in However, an accounts receivable turnover can be too high, this can occur when credit tems are rm so restrictive that they negatively affect sales volume. Inventory Turnover How long a company holds inventory before selling it will affect working capital requirements. One measure of this effect is inventery hurnover, also called mer- chandise turnover or merchandise inventory furnover, which is defined as follows (see Chapter 5 for additional explanation) Cost of goods sold Average inventory Inventory turnover Using Apple's cost of goods sold and inventories information, we compute its imventory tunover for 2012 as follows (if the beginning and ending inventories for the year do not represent the usual Iventery turnower inventory amount, an average of quarterly or monthly inventories can be used). Google n 76.42 amsung 7.57 ndustry7.0 $87.846 (5776+$791)/2 112.12 times Apple's inventory turnover of 112.12 is more than Google's 76.42 and Samsung's 7.57, and the industry's 7.0. A company with a high turnover requires a smaller investment in inventory than one producing the same sales with a lower turnover. Inventory turnover can be too high, how- ever, if the inventory a company keeps is so small that it restricts sales volume. Days' Sales Uncollected Accounts receivable turnover provides insight into how frequently a company collects its accounts. Days' sales uncollected is one measure of this activity, which is defined as follows (Chapter 6 provides additional explanation): 365 Days' sales uncollected .. Accounts receivable, net Net sales Any short-term notes receivable from customers are normally included in the numeratorExplanation / Answer
5.
c. Apple's Days' Sales in Inventory Ratio for 2012 = 3.3 Days
d. Apple had the lowest Days' Sales in Inventory Ratio when compared to that of the industry, Google and Samsung of 35 days, 8.9 days and 51.1 days respectively.
6.
a. Apple's Total Asset Turnover Ratio for 2012 = 1.07 times
b. Apple had a lower Total Asset Turnover Ratio than that of Samsung and the industry of 1.19 times and 1.2 times respectively but was higher than that of Google of 0.60 times.
7.
a. Apple's Debt-to-Equity Ratio for 2012 = 0.49
b. Apple's Debt-to-Equity Ratio for 2012 was higher than that of Google at 0.31, equal to that of Samsung at 0.49 and less than that of the industry at 0.6.
8.
a. Apple's Profit Margin for 2012 = 26.7%
b. Apple's had the highest profit margin for 2012 when compared to that of Google at 21.4%, Samsung at 11.9% and the industry at 11%.
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