a) a) Is it becoming easier for the company to meet its current debts on time and to take advantage of cash discounts?
No, Company does not have sufficient ability to meet its short term debts to take cash discount advantage. Current ratio and Acid-test ratio are the ratios which represent the liquidity position of the company. Even though company’s current ratio is 2.6 times (company has $2.6 of current assets available to meet each $1 of current obligations), company’s quick ratio is 0.8 times. Quick asset encompasses only liquid assets such as cash, marketable securities, and accounts receivable. Western Gear has only $0.8 of liquid assets to meet each $1 of current obligations. This condition signifies that Company holds the large portion of inventories on its current assets. It takes times to convert Inventories into finish products and to collect the cash. Therefore, company either sell some of its current assets or speed its receivable collect period to take cash advantage.
b) b) Is the company collecting its accounts receivable more rapidly over time?
.Over the time, company’s account receivable collection period is increased as a result company is not able to collect account receivable rapidly. Quick asset of the company is in decreasing trend and company is unable to meet its short term obligations. Therefore, company should redesign its credit policy.
c) c) Is the company's investmnet in accounts receivable decreasing?
No, company’s investment on accounts receivable has been increases. In earlier years company used to collect account receivable quickly than recent year. Even though sales has gone up year by year, company’s receivable collection has gone down. This shows that company’s money is tied up on account receivable and company is not able to cash it quickly.
d) d) Are dollars invested in inventory increasing?
.Yes, the dollar invested in inventories increased. Over the period, inventories turnover ratio has been decreasing. This suggests that Western Gear has hold excessive inventories and company is not able to convert those inventories into cash quickly. As a result, company’s investment on inventories has increased.
e) Looking at the total assets turnover and return on total assets, it seems that company’s investment in plant assets increases. Over the period, sales of the company have been increasing but the total assets turnover ratio remained the same and return on total assets gone down. This is because sales gone up and so does the investment on plant assets.
f) e.Is the company's investment in plant assets increasing?
.No, the owner’s investment is not more profitable. Over the year, Investors are getting lower return on their investment. Further, Company’s net profit margin and return on total assets has decreased. Company’s operating cost and other expenses might be higher given to its sales as a result net profit margin has decreased. Company has not generating sufficient return from its assets; company either can sell some of its total assets or increase sales volume.
g) Looking at the total assets turnover, return on total assets, and sales to plant assets, company is not using its assets efficiently. Even thought, sales and sales to plant assets have been increasing over the year, total assets turnover remains the same and the return from the assets has decreased. This indicates that company is unable to utilize its assets efficiently.
h) The ratio of selling expenses to net sales ratio has significantly gone down during the three years, at the same time, the sales of Western Gear Company has gone up year after year. Though, sales have increased, the Company has able to control their selling expenses. Therefore, the dollar amount of selling expenses has not decreased rather it is staying the identical.
thank you! help me a lot
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