1. Assuming that all line items on both financial statements are unchanged from last year to...
1. Assuming that all line items on both financial statements are unchanged from last year to this year, except that inventories have decreased, how will the following be affected: a) Asset Turnover b) Receivables Turnover c) Current Ratio
2. If a company’s payout ratio increases from 20% to 40%, what exactly will happen to the plowback ratio?
Please help me answer the above questions!
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Homework Answers
1. Fixed asset turnover will reamin unchanged. Total asset turnover will increase
Receivables turnover will reamin unchanged (Sales/Receivables)
Current ratio will decrease=(Current Assets including inventory/Current Liabilitirs)
2. Plowback=1-payout ratio
Hence, plowback ratio will decrease from 1-20%=80% to 1-40%=60%
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