CASE 1- ABINGTON-HILL TOYS, INC.
PART I – INTRODUCTION
Abington Hill Toys, Inc, a seasonal business that dependent on holiday season, which is a high-risk company that would easily results in costly for company to restore inventories in the non-holiday seasons.
In this case, because of no successor due to the death of Lewis Hill, the last founder of the company, and the slowly deteriorated financial condition as Mr. Hill was running the company’s final years, the stockholders decided to recruited and hired Vernon Albright to lead the company. The new president began to seek an assistant comptroller when he took the leadership role because the prior comptroller was incompetence and poor of management that resulted in the poor financial health. David Hartly, a comptroller who was experienced in budgetary procedures, joined the team of investigation of the financial condition of the firm in order to maintain financial health to a substantial degree. Hartly’s first task was to undertake a complete analysis of the firm’s financial condition.
PART II – METHODOLOGY
In order to evaluate the financial condition of the firm, the following ratios would be utilized:
A. Current ratio: Total Current Assets/ Total Current Liabilities
B. Acid-test ratio: (Current Assets - Inventory)/ Current Liabilities
C. Average collection period: Accounts Receivable/ Annual Credit Sales x 360 days
D. Inventory turnover: Cost Of goods sold/ Inventory
E. Fixed asset turnover: Sales/ Fixed Assets
F. Total asset turnover: Sales/ Total Assets
G. Debt Ratio: Total Debts/ Total Assets
H. Times interest earned: Operating Profit/ Interest Expense
I. Gross profit margin: Gross Profit/ Revenues
J. Net profit margin: Net Income/ Revenues
K. Return on total assets: EBIT/ Total Assets
L. Return on net worth: Net Income/ Shareholders Equity
PART III- SOLUTIONS
The solutions for the ratios listed above, are as follows:
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