Calculate the 3 ratios (show your calculations) for the company using the two mo

Question

Calculate the 3 ratios (show your calculations) for the company using the two most recent annual financial statements found on the financial information website you used earlier. Be careful not to use quarterly information, and include ratios for both years.

Efficiency Ratios:

Collection Period Ratio

Sales to Inventory Ratio

Assets to Sales Ratio

Company selected is Microsoft and data can be found here:

http://finance.yahoo.com/q/is?s=MSFT+Income+Statement&annual

http://finance.yahoo.com/q/bs?s=MSFT+Balance+Sheet&annual

Explanation / Answer

1. Collection Period = Average Receivables/ Net Sales x 365

=> Average Receivables = ($ 21485000 + $ 19118000)/2 = $ 20301500 thousand

=> Collection Period = $ 20301500 thousand/ $ 86833000 x 365 = 85.34 days (approx 85 days)

2. Sales to Inventory ratio = Net sales/ Average Inventory

=> Average Inventory = ($ 2660000 + $ 1938000)/2 = $ 2299000 thousand

=> Sales to Inventory = $ 86833000 thousand/ $ 2299000 thousand = 37.77

3. Assets to Sales Ratio = Total Assets/ Net Sales

=> $ 172384000 thousand/ $ 86833000 thousand = 1.99

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