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Chapter 4 Case Study Questions

Arthur Cunhs
D Leon, Inc. Part II
January 28, 2011

A. Why are ratios useful? What are the five major ratios?
The use of ratios are important to let a company know were its stand financially against other competitors. Also, ratios can be used to let investors know were a company stands financially, and produce organizational improvements with their finances. There are five major ratios Liquidy ratios, Asset management ratios, Debt management ratios, Profitability ratios, and Market value ratios.

B. Calculate D'Leon's 2009 current and quick ratios based on projected balance sheet and income statement data. What can you say about company's liquidity process in 2007, in 2008 and as projected in 2009? We often think of ratios as being useful (1) managers to help run the business, (2) bankers for credit analysis, and (3) to stockholders for stock valuation. Would theses different types of analyst have an equal interest in company liquidy ratios.
The Current ratio 2,680,112 Current liabilites1,144, 800=2.34 and the quick ratio Current assets
-Inventories 2,680,112-1,716,480/ Current liabilities 1,144,800=963,632/1,144,800=0.842x
The company's current and quick ratios are identical to its 2007current and quick ratios, and they
have improved from their 2008 levels. However, both the current ratios are well below the industry averages.
C. Calculate the 2009 inventory turnover, days sales (DSO), fixed assets turnover, and total assets turnover. How does D'Leon utilization of assets stack up against other firms in the industry
The Inventory turnover09= Sales/Inventory= $7,035,600/$1,716,480 = 4.10´. DSO09= Receivables/(Sales/365)   = $878,000/($7,035,600/365) = 45.55 days. Fixed assets turnover09 = Sales/Net fixed assets   = $7,035,600/$817,040 = 8.61´. Total assets turnover09 = Sales/Total assets=$7,035,600/$3,497,152 = 2.01´. The firm’s inventory turnover and total assets turnover ratios have been steadily declining,...

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