Assignment 08b U330 Accounting For Managers Directions Be Su

Assignment 08bu330 Accounting For Managersdirections Be Sure To Make

Analyze the financial statements and ratios for Harris Corporation based on the provided data, including calculating the acid-test ratio, inventory turnover, days' sales in receivables, book value per share, price-earnings ratio, rate of return on total assets, times-interest-earned ratio, and current ratio for the current year.

Paper For Above instruction

Financial statement analysis is a vital component for managers and stakeholders to evaluate a company's performance, liquidity, profitability, and operational efficiency. Using Harris Corporation's financial data for the current year, this analysis will delve into key ratios, interpret their implications, and assess the company's financial health comprehensively.

Introduction

In the highly competitive landscape of manufacturing and corporate operations, managers rely heavily on financial ratios derived from financial statements to assess a company's current standing and future prospects. Harris Corporation's financial data for the recent fiscal year provides a basis for examining liquidity, efficiency, and profitability measures. This analysis calculates specific ratios such as the acid-test ratio, inventory turnover, days' sales in receivables, book value per share, price-earnings ratio, return on total assets, times-interest-earned ratio, and current ratio to illustrate the company's financial performance.

Liquidity Ratios

1. Acid-Test Ratio

The acid-test ratio, also known as the quick ratio, measures a company's ability to meet short-term obligations with its most liquid assets. It excludes inventories and prepaid expenses, focusing on cash, accounts receivable, and other current assets that can be quickly converted into cash.

Calculation:

Acid-test ratio = (Cash + Accounts receivable + Prepaid expenses) / Current liabilities

For the current year:

= ($30,600 + $33,800 + $2,000) / $46,000 = $66,400 / $46,000 ≈ 1.444

This ratio of approximately 1.44 indicates that Harris Corporation's liquid assets are sufficient to cover its current liabilities comfortably, signaling good short-term financial health.

2. Current Ratio

The current ratio assesses the company's ability to pay its short-term obligations with all current assets.

Calculation:

Current Ratio = Total current assets / Total current liabilities

= $108,400 / $46,000 ≈ 2.36

An excellent current ratio over 2 indicates robust liquidity, suggesting Harris Corporation can meet its short-term liabilities with ease.

Efficiency Ratios

3. Inventory Turnover

This ratio measures how often a company's inventory is sold and replaced over a period. A higher turnover indicates efficient inventory management.

Calculation:

Inventory Turnover = Cost of Goods Sold / Average Inventory

Using the current year's data:

= $375,960 / (($42,000 + $30,300)/2) = $375,960 / ($36,150) ≈ 10.4 times

A turnover of approximately 10.4 suggests Harris efficiently manages its inventory, selling and replenishing stock over ten times annually.

4. Days' Sales in Receivables

This ratio indicates the average number of days it takes a company to collect payments from its customers.

Calculation:

Days' Sales in Receivables = (Accounts receivable / Net sales) × 365

= ($33,800 / $520,125) × 365 ≈ 0.06497 × 365 ≈ 23.7 days

Harris Corporation collects receivables in approximately 24 days, reflecting effective receivables management.

Profitability Ratios

5. Book Value Per Share

This shows the value of a company's equity attributable to each share of common stock.

Calculation:

Book Value per Share = Total common equity / Number of shares

Total shareholders' equity can be derived:

Total assets = current assets + long-term assets = $108,400 + $62,000 = $170,400

Total liabilities = current liabilities + long-term liabilities = $46,000 + $20,000 = $66,000

Shareholders' equity = Total assets - Total liabilities = $170,400 - $66,000 = $104,400

Therefore:

= $104,400 / 3,000 shares = $34.80 per share

6. Price-Earnings (P/E) Ratio

The P/E ratio measures the company's current share price relative to its earnings per share (EPS). Assuming the market price per share is calculated from the data:

Earnings per share (EPS) = Net income / Number of shares = $57,600 / 3,000 = $19.20

If the market price per share is not provided, it's typical to assume a hypothetical PE ratio or refer to market standards; however, for illustration, assume a common ratio:

Suppose market price per share is $96, then:

P/E Ratio = Market price per share / EPS = $96 / $19.20 = 5

Alternatively, if the market price were known, the ratio would directly reflect market valuation.

Profitability and Return Ratios

7. Rate of Return on Total Assets

This ratio indicates how efficiently the company generates profit from its assets.

Calculation:

Return on Assets = Net income / Total assets

= $57,600 / $170,400 ≈ 0.338, or 33.8%

A high return suggests effective utilization of assets to generate earnings.

8. Times-Interest-Earned Ratio

This ratio assesses a company's ability to service its interest obligations.

Calculation:

Times-interest-earned = Income from operations / Interest expense

= $95,500 / $23,500 ≈ 4.06 times

A ratio above 3 indicates Harris can comfortably meet interest payments from its operating income.

Conclusion

Harris Corporation's financial ratios portray a company with strong liquidity, efficient asset management, and healthy profitability. The high current and acid-test ratios suggest robust short-term financial health. The inventory turnover and receivables collection period denote operational efficiency. Profitability ratios, including return on assets and P/E, reflect effective use of assets and investor confidence, respectively. Overall, Harris appears to be financially stable and capable of sustaining its operations while generating value for shareholders.

References

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