Question

Consider the following case:

Polk Software Inc. has a quick ratio of 2.00x, $32,850 in cash, $18,250 in accounts receivable, some inventory, total current assets of $73,000, and total current liabilities of $25,550. The company reported annual cost of goods sold of $100,000 in the most recent annual report.
Over the past year, how often did Polk Software Inc. sell and replace its inventory?
a. 2.86 x.
b. 4.57 x.
c. 5.03 x.
d. 8.01 x.
The inventory turnover ratio across companies in the software industry is 3.89x. Based on this information, which of the following statements is true for Polk Software Inc.?
A. Polk Software Inc. is holding more inventory per dollar of sales compared to the industry average.
B. Polk Software Inc. 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 $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 companies' financial statements. This information is listed as follows:
Data Collected (in dollars)
Like Games Our Play Industry Average
Accounts receivable 2,700 3,900 3,850
Net fixed assets 55,000 80,000 216,750
Total assets 95,000 125,000 234,600
Using this information, complete the following statements to include in your analysis.
1. Our Play has__days of sales tied up in receivables, which is much___ than the industry average. It takes Our Play___time to collect cash from its customers than it takes Like Games.
2. Like Games's fixed assets turnover ratio is___than that of Our Play. This is because Like Games was formed eight years ago, so the acquisition cost of its fixed assets is recorded at historic values when the company bought its assets and has been depreciated since then. Assuming that fixed assets prices (not book values) rose over the past six years due to inflation, Our Play paid a___amount for its fixed assets.
3. The average total assets turnover in the electronic toys industry is 1.09x, which means that $1.09 of sales is being generated with every dollar of investment in assets. A___total assets turnover ratio indicates greater efficiency. Both companies' total assets turnover ratios are___than the industry average.

Answer 1

Polk Software Inc.

Over the past year, Polk Software Inc. sold and replaced its inventory?

b. 4.57 x.

Based on this information, the true statement about Polk Software Inc. is:

B. Polk Software Inc. is holding less inventory per dollar of sales compared to the industry average.

Like Games Inc. and Our Play Inc. Like Games:

1. Our Play has_14_days of sales tied up in receivables, which is much_8__ than the industry average. It takes Our Play_1.4__times to collect cash from its customers than it takes Like Games.

2.Like Games's fixed assets turnover ratio is_0.57__than that of Our Play. This is because Like Games was formed eight years ago, so the acquisition cost of its fixed assets is recorded at historic values when the company bought its assets and has been depreciated since then. Assuming that fixed assets prices (not book values) rose over the past six years due to inflation, Our Play paid a_less__amount for its fixed assets.

3. The average total assets turnover in the electronic toys industry is 1.09x, which means that $1.09 of sales is being generated with every dollar of investment in assets. A_more__total assets turnover ratio indicates greater efficiency. Both companies' total assets turnover ratios are_more__than the industry average.

Step-by-step explanation:

a) Data and Calculations:

Quick ratio = 2.00x

Cash = $32,850

Accounts receivable = $18,250

Current assets = $73,000

Inventory = $21,900 ($73,000 - $32,850 + $18,250)

Current liabilities = $25,550

Cost of goods sold = $100,000

How often Polk Software Inc. sold and replaced its inventory = (Cost of goods sold/Average Inventory)

= 4.57 x ($100,000/$21,900)

Industry turnover ratio = 3.89x

Like Games Inc. and Our Play Inc. Like Games:

Sales for each firm last year = $100,000

Average sales for all industry competitors = $255,000

Information from the companies' financial statements:

Data Collected (in dollars)

Like Games Our Play Industry Average

Accounts receivable 2,700 3,900 3,850

Net fixed assets 55,000 80,000 216,750

Total assets 95,000 125,000 234,600

Days sales in inventory = Average accounts receivable/Sales * 365

For Our Play = $3,900/$100,000 * 365

= 14.235 days

Like Games = $2,700/$100,000 * 365

= 9.855 days

For the Industry = $3,850/$255,000 * 365

= 5.51 days

Fixed assets turnover:

Like Games Our Play Industry Average

Sales $100,000 $100,000 $255,000

Net fixed assets 55,000 80,000 216,750

= Sales/Net fixed assets 1.82 1.25 1.18

= $100,000/55,000 $100,000/$80,000 $255,000/$216,750