FIN 3331 Critical Thinking Assignment
(Bold letters below are my answers)
Emily Smith just received a promotion at work that increased her annual salary to $42,000. She is eligible to participate in her employer’s 401(k) retirement plan to which the employer matches, dollar for dollar, workers’ contributions up to 5% of salary. However, Emily wants to buy a new $25,000 car in 3 years, and she wants to have enough money to make a $10,000 down payment on the car and finance the balance. Fortunately, she expects a sizable bonus this year that she hopes will cover that down payment in 3 years.
A wedding is also in her plans. Emily and her boyfriend, Paul, have set a wedding date two years in the future, after he finishes medical school. In …show more content…
Current ratio = = 0.9
Acid test ratio = = 0.63
2. Calculate DSO, fixed assets turnover, and total asset turnover for the firm.
DSO = = 32 days
Fixed assets turnover = = 4.6
Total asset turnover = 2.78
3. Calculate liabilities-to-assets ratio and times-interest-earned ratio for the firm.
Liabilities-to-assets = * 100= 55%
Times-interest-earned = = 4
4. Calculate net profit margin and return on equity for the firm.
Net profit margin = * 100 = 0.98%
Return on equity = = 6%
5. Evaluate the performance of the firm relative to the average performance of the industry in the following areas:
Overall, both the current ratio and quick ration are pretty good, especially the latter. It indicates that the firm is capable of paying its debt pretty quick, although it needs to collect the account receivables soon.
The DSO which is 7 days larger than the industry ratio indicates the customers often pay lately. However, the credit term of the firm is needed to evaluate further to see whether the credit manager is doing good or not.
The fixed asset turnover is lower than the industry ration.