Question

Which of the following is not an asset management ratio?

A days sales outstanding ratio

A fixed asset turnover ratio

A price-earnings ratio

The average collection period

Nikola Motors has a quick ratio of 2.00; $38,250 in cash; $21,250 in accounts receivable; some inventory; total current assets of $85,000; and total current liabilities of $29,750. In its most recent annual report, Nikola reported annual sales of $100,000 and a cost of goods sold equal to 65% of annual sales. How many times is Nikola Motors selling and replacing its inventory?

0.35x

2.805x

3.92x

2.55x

The inventory turnover ratio across companies in Nikola’s industry is 2.17. Based on this information, which of the following statements is true for Nikola Motors?

Nikola Motors is holding more inventory per dollar of COGS compared to the industry average.

Nikola is holding less inventory per dollar of COGS compared to the industry average.

You are analyzing two companies that manufacture electronic toys—IntelliGames Inc. and BrainGames Inc. IntelliGames was launched eight years ago, whereas BrainGames is a relatively new company that has only been in operation for the past two years. However, both companies have an equal market share with sales of $100,000 each. You’ve gathered up company data to compare IntelliGames and BrainGames.

For the same period, the average sales for 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, and the information follows:

Data Collected (in dollars)

	IntelliGames Inc.	BrainGames Inc.	Industry Average
Accounts receivables	$2,700	$3,900	$2,875
Net fixed assets	55,000	80,000	216,750
Total assets	95,000	125,000	234,600

Using the preceding information, complete the following statements.

1. A high or low days sales outstanding, or average collection period, represents an efficient credit and collection policy. Between the two companies,  IntelliGames or BrainGames    is collecting cash from its customers faster than IntelliGames or BrainGames ; but both companies are collecting their receivables less quickly than the industry average.

2. BrainGames Inc.’s fixed-asset turnover ratio is higher or lower than that of IntelliGames Inc. This could be because BrainGames is a relatively new company, such that the acquisition costs and book values of its fixed assets is greater or lower than the acquisition costs and book values of IntelliGames’s net fixed assets.

3. IntelliGames’ total asset turnover ratio is 1.05x or 0.80 , which is lower or higher than the industry’s average total asset turnover ratio. In general, a higher total asset turnover ratio indicates greater efficiency.

Answer 1

Q) Which of the following is not an asset management ratio?

Answer:- The answer is Price- earnings ratio.

The other ratios A days sales outstanding ratio, A fixed asset turnover ratio and  The average collection period are all asset management ratios. These ratios show how efficiently a company is utilizing its assets to generate revenues.

Q)

Given
quick ratio = 2.0
cash = $ 38250
accounts receivable = $ 21250
total current assets = $ 85000
total current liabilities = $ 29750

Annual sales = $ 100000
COGS = 65 % of annual sales = 65% x $ 100000 = 65000
Current ratio = current assets / current liabilities = $ 85000 / $ 29750 = 2.857
Quick ratio = (Current assets - inventories) / Current liabilities

Quick ratio = ($ 85000 - Inventory) / $ 29750
2.0 = ($ 85000 - Inventory) / $ 29750
2.0 x $ 29750 = $ 85000 - Inventory
$ 59500 = $ 85000 - inventory
Inventory = $ 85000 - $ 59500
Inventory = $ 25500

The company is selling or replacing inventory is Inventory turnover ratio = COGS / Average inventory
= $ 65000 / $ 25500
= 2.549
= 2.55

Therefore the correct choice is fourth option 2.55x

Q)

Given
The inventory turnover ratio across companies in Nikola’s industry = 2.17
The calculated value of inventory turnover of Nikola =2.55
Since the inventory turnover of Nikola is higher than the industry's turnover ratio therefore Nikola is holding less inventory per dollar of COGS compared to the industry average.
  

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