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Safari File Edit View History Bookmarks Window Help a ng Golf I MindTap Ceng MINDTAP From Cengage a Search this course Ch 04: Assignment-Analysis of Financial Statements 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 company that has been in operation for only the past two years. However, both companies have an equal market share with sales of $100,000 each. You've collected company data to compare Like Games and Our Play. Last year, the average sales for all industry competitors was $255,000. As an analyst, you want to make comments on the expected performance of these two companies in the coming year. You've collected data from the companie s' financial statements. This information is listed as follows: Like Games 2,700 55,000 95,000 Our Play 3,900 80,000 125,000 3,850 216,750 234,600 Net fixed assets using this information, complete the following statements to include in your analysis. days of sales outstanding represents an efficient credit and collection pollicy. Between the two companies, is collecting cash from its customers faster than , but both companies are collecting their receivables less quickly than the industry than that of Like Games. This could be because Our Play is a relatively new company, so than the recorded cost of Like Games's net fixed assets. 2. Our Play's fixed assets turnover ratio is the acquisition cost of its fixed assets is 3. Like Games's total assets turnover ratio is general, a higher total assets turnover ratio indicates greater efficiency which is than the industry's average total assets turnover ratio.Explanation / Answer
1) Days sales outstanding
Days sales outstanding = (Accounts receivables / Sales) x 365 days
Like Games = ($2700 / $100,000) x 365 days = 9.855 days or 10 days
Our play = ($3900 / $100,000) x 365 days = 14.235 days or 14 days
Industry average = ($3850 / $255000) x 365 days = 5.511 days or 6 days
The lower this ratio, the better it is since it denotes the collection time from receivables.
A 6 days of sales outstanding represents an efficient credit and collection policy. Between the two companies, Like Games is collecting cash from its customers faster than Our play, but both the companies are collecting their receivables less quickly than the industry average.
2) Fixed Assets turnover
Fixed assets turnover = Sales / Net Fixed assets
Like Games = $100,000 / $55000 = 1.818181 or 1.82 times
Our play = $100,000 / $80,000 = 1.25 times
Our play's fixed asset turnover ratio is less than that of Like Games. This could be because Our Play is a relatively new company, so acquisition cost of its fixed assets is more than the recorded cost of Like Game's net fixed assets.
3) Total assets turnover
Total assets turnover = Sales / Total assets
Like Game = 100,000 / 95,000 = 1.05 times
Industry average = 255000 / 234600 = 1.09 times
Like Game's Total asset turnover ratio is 1.05, which is less than the industry's average total asset turnover ratio.
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