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Part 2

- A firm has a days sales outstanding (DSO) of 20 days. The industry average DSO is 15 days. Is this a good or poor sign about the firm’s performance? Explain your answer. (2 points)

- A firm has a time interest earned ratio of 3.6. The industry average interest earned ratio is 2.7. Is this a good or poor sign about the firm’s performance? Explain your answer (2 points)

- H-mart has a quick ratio of 0.82, current liabilities of $628,000 and inventories of $975,000. What is the firm’s current ratio? (Hint: find current assets first and then calculate the current ratio) (3 points)

- Wiley Sports has sales of $882,880 and account receivables of $124,000. What is the company’s receivables turnover ratio? What is the firm’s Day Sales Outstanding (DSO)? Do we prefer a higher or lower account receivable turnover ratio? (4 points)

- Wiley Sports Inc. has a ROE of 12.8 percent, a profit margin of 1.6 percent, and a total asset turnover ratio of 1.82 times. Its rival company Atlantic Sports Inc. also has a ROE of 12.8 percent but has outperformed Wiley Sports with a profit margin of 2.9 percent and a total asset assets turnover ratio of 2.5 times. Explain why Atlantic Sports can only achieve the same level of profitability as Wiley Sports measured by the ROE. (3 points)

- The BlueSky Inc. has the following ratios: Sales/Total asset = 5.5; ROA = 8.25%, ROE = 19.8% What are the company’s profit margin and equity multiplier (3 points)

- NTC company has an EM of 3.4 and JET Inc. has an EM of 2.5. Find the liabilities/assets ratio of the two companies, which company has a higher level of financial leverage (3 points).