The Charter Company

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– The Charter Company
Discussion Questions
Answer these questions using the overview (p. 1) and 5 Exhibits (pp. 3 – 9). Write your responses in a new thread on the board. 1. Calculate the following ratios for each year during the period 1980-1983. Comment on the trend indicated by each ratio with respect to the financial performance and condition of the Charter Company.

a. Profitability:
Return on average total assets (assume a 46% income tax rate) ROTA=Sales/Total assests
1983=133896/1720622.5=7.78%
1982=108180/1584686=6.83%
1981=155673/1643793=6.45%
1980=145485/1737477=8.37%
The number are normal expect in 1981.

b. Turnover:
i. Accounts receivable (based on average gross trade receivables). RTR= Sales/Average net receivables
1983=5656770/278680.5=20.3
1982=4017161/303254=13.2
1981=4966171/333050=14.9
1980= 4563011/309291=14.8
The company is not selling as fast as they are receiving.

ii. Inventory (based on average total inventory).
ITR=Sales/Average total inventory
1983=5656770/304733=18.6
1982=4017161/188218=21.3
1981=4966171/216129=22.9
1980=4563011/321876=14.2

iii. Total assets (based on average total assets).
TAR=Sales/Average total assets
1983=5656770/1720623=3.3
1982=4017161/1584686=2.5
1981=4966171/1643793=3.0
1980=4563011/1737477=2.6

c. Liquidity:
i. Current ratio
Current Assets/Current Liabilities
1983=801727/700755=1.14
1982=641876/540659=1.19
1981=608945/459123=1.32
1980=773662/535457=1.44
ii. Quick ratio
Current Assets–total inventories/Current Liabilities
1983=801727-369716/700755=0.62
1982=641876-239749/540659=0.74
1981=608945-136687/459123=1.03
1980=773662-295571/535457=0.89
The ratio is high showing the company can’t meet their obligations.

d. Solvency
i. Total liabilities to total equities
1983=1199072/614127=1.95
1982=987255/640791=1.54
1981=886745/654581=1.35
1980=1068574/677686=1.58
ii. Total long-term debt to total long-term debt plus owner’s equity 1983=40.3%...
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