RATIO ANALYSIS The following data apply to A.L. Kaiser & Company (millions of dollars):
|
Cash and equivalents |
$100.00 |
|
Fixed assets |
283.50 |
|
Sales |
1,000.00 |
|
Net income |
50.00 |
|
Current liabilities |
105.50 |
|
Current ratio |
3.00× |
|
DSOa |
40.55 days |
|
ROE |
12.00% |
aThis calculation is based on a 365 day year.
Kaiser has no preferred stock—only common equity, current liabilities, and long term debt.
a. Find Kaiser’s (1) accounts receivable, (2) current assets, (3) total assets, (4) ROA, (5) common equity, (6) quick ratio, and (7) long term debt.
b. In Part a, you should have found that Kaiser’s accounts receivable (A/R) = $111.1 million. If Kaiser could reduce its DSO from 40.55 days to 30.4 days while holding other things constant, how much cash would it generate? If this cash were used to buy back common stock (at book value), thus reducing common equity, how would this affect (1) the ROE, (2) the ROA, and (3) the total debt/total assets ratio?