Part 2 Chapter 4 Assignment Attempts: Keep the Highest: /24 2. Asset management
ID: 2813327 • Letter: P
Question
Part 2Chapter 4 Assignment Attempts: Keep the Highest: /24 2. Asset management ratios Aa Aa Asset management ratios are used to measure how effectively a firm manages its assets, by relating the amount a firm has invested in a particular type of asset (or group of assets) to the amount of revenues the asset is generating. Examples of asset management ratios include the average collection period (also called the days sales outstanding ratio), the inventory turnover ratio, the fixed asset turnover ratio, and the total asset turnover ratio. Consider the following case: Monroe Manufacturing has a quick ratio of 2.00x, $31,500 in cash, $17,500 in accounts receivable, some inventory, total current assets of $70,000, and total current liabilities of $24,500. The company reported annual sales of $500,000 in the most recent annual report. Over the past year, how often did Monroe Manufacturing sell and replace its inventory? 0 2.86 x O 26.19 x O 8.01 x O 23.81 x The inventory turnover ratio across companies in the manufacturing industry is 20.24x. Based on this information, which of the following statements is true for Monroe Manufacturing? O Monroe Manufacturing is holding more inventory per dollar of sales compared to the industry average. O Monroe Manufacturing is holding less inventory per dollar of sales compared to the industry average. 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 $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 performance of these two companies in the coming year. You've collected data from the companies financial statements. This information is listed as follows:
Explanation / Answer
Note: Both parts are separate and independent. So as per rule I am answering first part only (including both questions of first part.).
Part – 1;
Monroe manufacturing sells and replace its inventory 23.81 x
Explanation;
Inventory turnover ratio = Cost of goods sold or Sales / Inventory
Sales is given = $500000
Inventory will be ($70000 - $31500 - $17500) = $21000
Thus inventory turnover ratio will be ($500000 / $21000) = 23.81 x
Correct answer is option (Monroe manufacturing is holding less inventory per dollar of sales compared to industry average.)
Explanation;
As per information of question, it is clear that inventory turnover ratio of the industry is 20.24 x whereas inventory turnover ratio of Monroe manufacturing is 23.81 x, this means that Monroe manufacturing is holding less inventory per dollar of sales compared to industry average.