Question

Case 5.2 Avnet (AVT/NYSE) Summary of Financial Statement Ratios Show Formulas Avnet, a leading distributor of electronic components, enterprise computer and storage products and embedded subsystems, appears to be on the road to recovery in 2010, after a volatile three year period. The recent downturn in the economy presented challenges for many firms, including Avnet, with 2009 being a particularly difficult year. A discussion of the financial well- bcing of Avnct follows, as well as recommendations for investors and creditors. 3.2013 Rosuster the Year Ending Jan 27, 2009 Jan 20, 2008 Liquidity Ralios Current ratio Quick Ratio Cash fowliquidity Avenge collection period Days inventory held Days payable outstanding Cash cornersion cycle 1.93 times 1.40 times 0.31 times 69.00 days 40.00 days 62.00 days 47 days 2.09 times 1.2 mes 0.84 times O days 37.00 days 51.00 s 45 days Short-term liquidity Avnet's short-term liquidity is slightly worse/better in 2010 compared to 2009? ... The average collection period has increased/decreased? Activity Ratios: Accounts menivable turnover Inventory tumover Payables tumaver Fixed assollumer Total asset tumaver 538 times 931 times 5.90 times 63.32 times 2.48 times 6.20 times 10.00 times 7.26 times 53.09 Uimed 2.59 times Both sales and accounts receivable increased in 2010, but the allowance for doubtful accounts decreased... Based on the positive CFO in both 2008 and 2009 and the increasing cash balance, despite the negative CFO in 2010... liquidity concerns 2 Leverage Ratics Debt ratio Long-term debt to total capitalization Debt to equity Financial leverage (FL! Times interest rated Cash interest coverage Fixed charge sorge Cash tow adequacy 61.33 % 29.24 % 150 times 2.59 times 10 20 times 2.03 times 5.55 times 043) times 55.99 % 25.53 % 1.27 times 2.27 times 12.36) times 19.60 mee 16.67 times 2.15 times HC16 im AS 9.73 times 5.22 times 345 times Operating efficiency The accounts receivable, inventory and accounts payable turnovers were discussed under short-term liquidity. Fixed asset tumover has increased/decreased? 12.46 % 16.281 % Based on the note detailing property, plant and equipment, Avnet was able to reduce/increase their investment in buildings and furniture, machinery and equipment,... may be the result of write-downs of fixed asset values? Total asset turnover declined/increased ?.. Material ? Profitability Ratioe Gross profit margin Operating profit margin Net profit margin Cash tow margin Retum on assets ROA) or Return on investment ROI Retum on equily (ROC) Cash retum on esses 12.9 % 3.96 % 2.73 % 2.53 % 11.30 3.32% 2.14 % (016) 5.27 % 13.64 % (0.38) 6.89% (18.01 40.92) 17.82 Capital structure and long-term solvency Avnet's debt structure is somewhat risky/ safe? The above-mentioned percentages will change as Bell Microproducts financial statements are combined with Avnet's current statements... 2.71 $ (7.49 $ 3.28 Market Ralios. Earnings per share Pro-o-org Didend payout Didend yield The times interest carned and fixed charge coverage ratios ... Cash flow adequacy? NOTES: Iramatis u rator andior dominator quis , is displayed

Answer 1

Ans. Previously, the companies looked at recognizing the revenue in a straight line method over the life of the product. However, FASB approved the changes and now a company can book more revenue in the first year itself.

If a company begins to recognize revenue in the first year itself, it'll lead to the company recording more profits in the first year as compared to the later years. Therefore, the financial statement of the company will show a distorted figure as to the amount of revenue being recognized.

The management may recognize revenue early due to the following reasons: (i) It leads to better results in the first year (ii) They'll end up getting more commission on profit (iii) In order to fulfill performance obligations

The stock of a company will fluctuate leaps and bounds. In one year, it'll rise due to increase in profit. However, in the subsequent years it'll fall sharply due to inadequate profits.