Based on your analysis, what are the strengths and weakness of Bettancort Inc.?
ID: 2575478 • Letter: B
Question
Based on your analysis, what are the strengths and weakness of Bettancort Inc.?
Problem 15 (14)- 4 A Financial & Managerial Accounting 13 th edition p.742-743 Nineteen measures of solvency and profitability.
1.
Current Assets
-
Current
Liabilities
=
Calculated Value
1.
Working capital:
$1,100,000
$440,000
$660,000
Ratio
Numerator
÷
Denominator
=
Calculated Value
2.
2.
Current ratio
$ 1,100,000
$ 440,000
2.5
3.
3.
Quick ratio
$ 880,000
$ 440,000
2.0
4.
4.
Accounts receivable
turnover
$ 1,200,000
$ 120,000
10.0
5.
5.
Number of days'
sales in receivables
$ 120,000
$ 3,288
*
36.5
*
6.
6.
Inventory turnover
$ 500,000
$ 62,500
8.0
7.
7.
Number of days'
sales in inventory
$ 62,500
$ 1,370
*
45.6
*
8.
8.
Ratio of fixed assets to
long-term liabilities
$ 1,320,000
$ 1,100,000
1.2
9.
9.
Ratio of liabilities to
stockholders' equity
$ 1,540,000
$ 3,230,000
0.5
10.
10.
Number of times
interest charges earned
$ 446,000
$ 66,000
6.8
11.
11.
Number of times
preferred dividends earned
$ 300,000
$ 15,000
20.0
12.
12.
Ratio of sales to
assets
$ 1,200,000
$ 2,287,500
0.5
13.
13.
Rate earned on total
assets
$ 366,000
$ 4,562,500
8.0%
14.
14.
Rate earned on stock-
holders' equity
$ 300,000
$ 3,092,500
9.7%
15.
15.
Rate earned on common
stockholders' equity
$ 285,000
$ 2,892,500
9.9%
16.
16.
Earnings per share
on common stock
$ 285,000
10,000
$28.50
17.
17.
Price-earnings ratio
$ 71.25
$ 28.50
2.5
18.
18.
Dividends per share
of common stock
$ 10,000
10,000
$1.00
19.
19.
Dividend yield
$ 1.00
$ 71.25
1.4%
1.
Current Assets
-
Current
Liabilities
=
Calculated Value
1.
Working capital:
$1,100,000
$440,000
$660,000
Ratio
Numerator
÷
Denominator
=
Calculated Value
2.
2.
Current ratio
$ 1,100,000
$ 440,000
2.5
3.
3.
Quick ratio
$ 880,000
$ 440,000
2.0
4.
4.
Accounts receivable
turnover
$ 1,200,000
$ 120,000
10.0
5.
5.
Number of days'
sales in receivables
$ 120,000
$ 3,288
*
36.5
*
6.
6.
Inventory turnover
$ 500,000
$ 62,500
8.0
7.
7.
Number of days'
sales in inventory
$ 62,500
$ 1,370
*
45.6
*
8.
8.
Ratio of fixed assets to
long-term liabilities
$ 1,320,000
$ 1,100,000
1.2
9.
9.
Ratio of liabilities to
stockholders' equity
$ 1,540,000
$ 3,230,000
0.5
10.
10.
Number of times
interest charges earned
$ 446,000
$ 66,000
6.8
11.
11.
Number of times
preferred dividends earned
$ 300,000
$ 15,000
20.0
12.
12.
Ratio of sales to
assets
$ 1,200,000
$ 2,287,500
0.5
13.
13.
Rate earned on total
assets
$ 366,000
$ 4,562,500
8.0%
14.
14.
Rate earned on stock-
holders' equity
$ 300,000
$ 3,092,500
9.7%
15.
15.
Rate earned on common
stockholders' equity
$ 285,000
$ 2,892,500
9.9%
16.
16.
Earnings per share
on common stock
$ 285,000
10,000
$28.50
17.
17.
Price-earnings ratio
$ 71.25
$ 28.50
2.5
18.
18.
Dividends per share
of common stock
$ 10,000
10,000
$1.00
19.
19.
Dividend yield
$ 1.00
$ 71.25
1.4%
Explanation / Answer
Answer :- The following are the some strengths of Bettancort inc. :-
1). Current ratio of Bettancort inc. is very good. High current ratio shows the greater ability of Bettancort inc. to meet its current obligations and more safety of funds of the short-term creditors.
2). Quick ratio of Bettancort inc. is very good. High quick ratio (liquid ratio) shows that a business enterprise (Bettancort inc.) possesses sufficient liquid / quick assets to pay off its liquid / quick liabilities.
3). High inventory turnover ratio indicates efficiency in the stock management.
4). Time interest earned (interest coverage ratio) of Bettancort inc. is very good which indicates that the business enterprise has high earnings before interest and tax (EBIT) i.e., high operating income to cover its interest expenses.
5). High accounts receivable turnover ratio indicates that the debts of Bettancort inc. are being collected quickly. In general, High ratio indicates the shorter collection period which implies prompt payment by customer (debtor).
The following are the some weaknesses of Bettancort inc. :-
1). Price-earning ratio of Bettancort inc. is very low.
2). Rate of return earned on common stockholders' equity is quite low.
3). Dividend per share on common stock and Dividend yield of Bettancort inc. is very low.
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