you are analyzing two companies that manufacture electronic 50AA.. ago, whereas
ID: 2563679 • Letter: Y
Question
you are analyzing two companies that manufacture electronic 50AA.. ago, whereas Our Play is a relatively new company that has been in operation for only the past two years. However, both comparies have an equal market share with sales of $500,000 each. You've collected company data to compare Like Games and Our Play. Last year, the average sales for all industry competitors was $1,275,000. As an analyst, you want to make comments on the expected companies in the coming year. You've collected data from the companies' financial statements. This information is listed as follows: of these two Data Collected (in dollars) Like Games 13,500 275,000 Our Play 19,500 400,000 625,000 Industry Average 19,250 1,083,750 1,173,000 Net fixed assets Total assets Using this information, complete the following statements to include in your analysis. 1. Our Play has time to collect 2. Like Games's foced assets turnover ratio is acquisition cost of its fxed assets is recorded when the Assuming that fixed assets prices (not book values) rose over the past six years due to infation, Our Play paid a days of sales tied up in receivables, which is much from its customers than it takes Like Games than the industry average. It takes Our Play than that of Our Play. This is because Like Games was formed eight years ago, so the at historic values when the company bought its assets and has been depreciated since then amount for its fixed 3. The average total assets turnover in the dolar of investment in assets. A total assets turnover ratio indicates greater efficiency. Both companies' total assets turnover ratios toys industry is 1.09x, which means that $1.09 of sales is being generated with every than the Industry average.Explanation / Answer
Answer 1. Average Collection Period = (Average Accounts Receivables / Net Credit Sales) X 365 Like Games = ($13,500 / 500,000) X 365 = 9.86 Days (Approx.) Our Play = ($19,500 / 500,000) X 365 = 14.24 Days (Approx.) Industry Average = ($19,250 / $1,275,000) X 365 = 5.51 days (Approx.) Our Play has 14.24 days of sales tied up in receivables, which is much higher the industry average. It takes Our Play more time to collect cash from its custmers than it takes Like Game. Answer 2. Fixed assets Turnover Ratio = Net sales / Fixed Assets Like Games = $500,000 / $275,000 = 1.82 times Our Play = $500,000 / $400,000 = 1.25 times Industry Average = $1,275,000 / $1,083,750 = 1.18 times Like Games'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 that fixed assets prices (not book values) rose over the past six years due to inflation, Our Play paid a higher amount for its fixed assets. Answer 3. Total Assets Turnover Ratio = Sales / Total Assets Like Games = $500,000 / $475,000 = 1.05 times Our Play = $500,000 / $625,000 = 0.80 times Industry Average = $1,275,000 / $1,173,000 = 1.09 times The average total assets turnover in the electronic toys industry is 1.09x which means that the 1.09 of sales is being generated with every dollar of investment in assets. A higher total assets turnover indicated greater efficiency. Both companies' total assets turnover ratios are lower than the industry average..
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