Finance question – treasury management

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3.1. The following information is available about Marne Company for 2010. All sales are on credit.

 

 

 

Average cash and marketable securities = $1 million

 

EBIT = $2 million

 

Average inventory = $5 million

 

COGS = $15 million

 

Average accounts payable = $3 million

 

Long-term bonds = $8 million

 

Average accounts receivable = $3 million

 

Coupon rate on bonds = 10%

 

 

 

Total Sales = $20 million

 

 

 

Find its:

 

(A) Inventory turnover ratio, 3.00

 

(B) Number of days sales outstanding, 54.75 days

 

(C) Interest coverage ratio, 2.50

 

(D) Current ratio, 3.00

 

(E) Quick ratio, 1.333

 

 

 

3.2. Ider Corp expects to have $3.73 as earnings per share next year. The cost of equity for Ider is 16%, whereas its dividend yield is 4%. The price per share of Ider is $40. Find its dividend payout ratio. Find its current P/E ratio.

 

DPR = 42.9%, P/E = 12.01

 

 

 

3.3. Indicate whether the following actions will increase, decrease, or make no change in the cash position of Neva Company. Give a short explanation in each case.

 

 

 

1. The firm collects payments from previous sales.

 

2. The company buys a piece of machinery by using long-term debt.

 

3. The company buys raw material for inventory on credit.

 

4. The company issues common stock.

 

5. The firm sells merchandise on credit.

 

6. The company declares a dividend.

 

7. The company purchases raw materials for inventory and pays in cash.

 

8. The firm pays interest on long-term debt.

 

9. This year’s tax liability is increased.

 

10. The firm pays last year’s taxes.

 

11. The firm uses retained earnings to buy marketable securities.

 

12. The corporation buys a piece of furniture using a short-term note.

 

13. The company increases the allowance for bad debts.

 

14. The company buys back its own stock.

 

15. The firm borrows on a short-term note.

 

16. The company pays for a previous purchase.

 

17. The company sells some merchandise for cash.

 

18. The firm increases the accumulated depreciation.

 

19. The firm gives away some merchandise to charity.

 

20. The firm receives an insurance payment after a fire loss.

 

 

 

3.4. Go to the Internet and find the following ratios for McDonald Corporation (MCD). Give the source of your information.

 

 

 

Ratio

 

Formula

 

Calculation

 

Ratio

 

Liquidity

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

Quick, or Acid Test

 

 

 

 

 

 

Asset Management

 

 

 

 

 

 

 

Inventory Turnover

 

 

 

 

 

 

Days sales outstanding

 

 

 

 

 

 

Fixed assets turnover

 

 

 

 

 

 

Total assets turnover

 

 

 

 

 

 

Debt Management

 

 

 

 

 

 

 

Debt ratio

 

 

 

 

 

 

Interest coverage

 

 

 

 

 

 

Profitability

 

 

 

 

Net profit margin

 

 

 

 

 

 

Net return on assets

 

 

 

 

 

 

Return on common equity

 

 

 

 

 

 

Dividend payout ratio

 

 

 

 

 

 

Market Value

 

 

 

 

P-E ratio

 

 

 

 

 

 

Market/Book

 

 

 

 

 

 

Dividend yield