Ratio analysis, horizontal analysis and vertical analysis are the analytical tools used by the analyst to measure the financial performance of the company. They are used to compare the performance of a company over a period of time. To compare: The solvency of the given companies and stating the ratio(s) used to arrive at this decision.

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Chapter 13, Problem 5.3GBP

To determine

Introduction:

Ratio analysis, horizontal analysis and vertical analysis are the analytical tools used by the analyst to measure the financial performance of the company. They are used to compare the performance of a company over a period of time.

To compare:

The solvency of the given companies and stating the ratio(s) used to arrive at this decision.

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The Barnsdale Corporation has the following ratios: A0*/S0 = 1.6; L0*/S0 = 0.4; profit margin = 0.10; and dividend payout ratio = 0.45, or 45%. Sales last year were $100 million. suppose Barnsdale’s financial consultants report (1) that the inventory turnover ratio (sales/inventory) is 3, compared with an industry average of 4, and (2) that Barnsdale could reduce inventories and thus raise its turnover ratio to 4 without affecting its sales, profit margin, or other asset turnover ratios. Requirement: a. Under these conditions, use the AFN equation to determine the amount of additional funds Barnsdale would require during the 1st year if sales grow at a rate of 20% per year. Sample format: 1,111,111 b. Under these conditions, use the AFN equation to determine the amount of additional funds Barnsdale would require during the 2nd year if sales grow at a rate of 20% per year. Sample format: 1,111,111

The Barnsdale Corporation has the following ratios: A0*/S0 = 1.6; L0*/S0 = 0.4; profit margin = 0.10; and dividend payout ratio = 0.45, or 45%. Sales last year were $100 million. suppose Barnsdale’s financial consultants report (1) that the inventory turnover ratio (sales/inventory) is 3, compared with an industry average of 4, and (2) that Barnsdale could reduce inventories and thus raise its turnover ratio to 4 without affecting its sales, profit margin, or other asset turnover ratios. 1.) Under these conditions, use the AFN equation to determine the amount of additional funds Barnsdale would require during the 1st year if sales grow at a rate of 20% per year. 2.)Under these conditions, use the AFN equation to determine the amount of additional funds Barnsdale would require during the 2nd year if sales grow at a rate of 20% per year.

The Diamond Corporation has the following ratios: A0*/S0 = 1.6; L0*/S0 = 0.4; Profit Margin = 0.10; and Dividend Payout Ratio = 0.45, or 45%. Sales last year were $100 million, suppose Diamond’s financial consultants report (1) that the Inventory Turnover Ratio (sales/inventory) is 3, compared with an Industry Average of 4, and (2) that Diamond could reduce inventories and thus raise its Turnover Ratio to 4 without affecting its Sales, Profit Margin, or other Asset Turnover Ratios. A. Under these conditions, use the AFN equation to determine the amount of additional funds Diamond would require during the 1st year if sales grow at a rate of 20% per year. B. Under these conditions, use the AFN equation to determine the amount of additional funds Diamond would require during the 2nd year if sales grow at a rate of 20% per year.