Exam 5: Risk Analysis

Bankruptcy analysis research has gone through many iterations,from univariate bankruptcy prediction models to sophisticated logit models.However,after examining the results of the research there appear to be a number of common factors that consistently explain bankruptcy.These factors can be grouped into investment factors,financing factors,operating factors.For each of the three groups discuss specific factors that have been found to significantly explain bankruptcy.

Caraway Company's net accounts receivable was $300,000 at December 31,2012 and $450,000 at December 31,2013.Net cash sales for 2008 were $425,000.The accounts receivable turnover for 2013 was 7.0,and this turnover figure was computed from net credit sales for the year. Required: What were Caraway's total net sales for 2013? 

When a financial analyst examines the credit risk of a company,it is common that he or she uses a set of factors that all begin with the letter "C." Each factor provides a consideration that enters into the lending decision.List and discuss how each of the factors affects a company's credit risk.

Mobile Company Mobile Company manufactures computer technology devices.Selected financial data for Mobile is presented below; use the information to answer the following questions: As of Dec. 31,2010 Dec. 31,2009 Cash and short-term investments \ 1,267,038 \ 616,604 Accounts Receivable (net) 490,816 665,828 Inventories 338,599 487,505 Prepaid Expenses and other current assets \underlind 291,915 Total Current Assets \ 2,388,964 \ 2,061,852 Current Liabilities Short-term borrowings \ 25,190 \ 38,108 Current portion of long-term debt 182,295 210,090 Accounts payable 296,307 334,247 Accrued liabilities 941,912 743,999 Income taxes payable Total Current Liabilities 1.648753 566237 $\text { Selected Income Statement Data - for the year ending December 31, 2010: }$ Net Sales \ 4,885,340 Cost of Goods Sold 2,542,35 Operating Income 733,54 Net Income 230,10 $\text { Selected Statement of Cash Flow Data - for the year ending December } 31,2010:$ Cash Flows from Operations \ 1.156,08 -Refer to the information for Mobile Company.Mobile's days receivables outstanding at the end of 2010 was:

Mobile Company Mobile Company manufactures computer technology devices.Selected financial data for Mobile is presented below; use the information to answer the following questions: As of Dec. 31,2010 Dec. 31,2009 Cash and short-term investments \ 1,267,038 \ 616,604 Accounts Receivable (net) 490,816 665,828 Inventories 338,599 487,505 Prepaid Expenses and other current assets \underlind 291,915 Total Current Assets \ 2,388,964 \ 2,061,852 Current Liabilities Short-term borrowings \ 25,190 \ 38,108 Current portion of long-term debt 182,295 210,090 Accounts payable 296,307 334,247 Accrued liabilities 941,912 743,999 Income taxes payable Total Current Liabilities 1.648753 566237 $\text { Selected Income Statement Data - for the year ending December 31, 2010: }$ Net Sales \ 4,885,340 Cost of Goods Sold 2,542,35 Operating Income 733,54 Net Income 230,10 $\text { Selected Statement of Cash Flow Data - for the year ending December } 31,2010:$ Cash Flows from Operations \ 1.156,08 -Refer to the information for Mobile Company.Mobile's quick ratio changed by what percentage from 2009 to 2010?

Mobile Company Mobile Company manufactures computer technology devices.Selected financial data for Mobile is presented below; use the information to answer the following questions: As of Dec. 31,2010 Dec. 31,2009 Cash and short-term investments \ 1,267,038 \ 616,604 Accounts Receivable (net) 490,816 665,828 Inventories 338,599 487,505 Prepaid Expenses and other current assets \underlind 291,915 Total Current Assets \ 2,388,964 \ 2,061,852 Current Liabilities Short-term borrowings \ 25,190 \ 38,108 Current portion of long-term debt 182,295 210,090 Accounts payable 296,307 334,247 Accrued liabilities 941,912 743,999 Income taxes payable Total Current Liabilities 1.648753 566237 $\text { Selected Income Statement Data - for the year ending December 31, 2010: }$ Net Sales \ 4,885,340 Cost of Goods Sold 2,542,35 Operating Income 733,54 Net Income 230,10 $\text { Selected Statement of Cash Flow Data - for the year ending December } 31,2010:$ Cash Flows from Operations \ 1.156,08 -Refer to the information for Mobile Company.Mobile's 2010 Inventory Turnover ratio is:

For each of the following scenarios,determine if it is an indicator of potential cash flow problems:                                                                                     Potential future cash                                                                                       flow problems                                                                                          Yes/No a.Growth in accounts receivable or inventories that is less the growth rate in sales. b.Increases in accounts payable that exceed the increase in inventories. c.Capital expenditures that substantially exceed cash flow from operations. d.Sales of marketable securities are less than purchases of marketable securities. e.Other operating current liabilities that grow at a lesser rate than sales. f.A reduction or elimination of dividend payments g.A substantial shift from long-term borrowing to short-term borrowing.

The quick acid test ratio contains all of the following except:

Cash flow from operations indicates the amount of cash that the firm derived from operations after funding ______________________________.

Here are several ratios calculated from Midas Company's financial statements: Days in Receivables = 45 Days in Payables = 36 Days in Inventory = 30 How many days of working capital financing does Midas need to obtain from other sources?

Falcon Corporation has current assets of $400,000 and current liabilities of $275,000. Required: Compute the effect of each of the following transactions on Falcon's current ratio: a.Refinanced a $60,000 long-term mortgage with a short-term note. b.Purchasing $108,000 of merchandise inventory with short-term accounts payable. c.Paying $50,000 of short-term accounts payable. d.Collecting $90,000 of short-term accounts receivable.

Foxmoor Company's merchandise inventory and other related accounts for 2012 follow: Sales \ 3,100,000 Cast af Gadds Sald 2,153,200 Merchantise Inventary Bepinning of Year 850,000 End of Year 995,000 Required: Calculate Foxmoor's inventory turnover during 2012 assuming that the merchandise inventory buildup was relatively constant during the year. 

The analysis of short-term liquidity risk requires an understanding of the _________________________ of a firm.

Mobile Company Mobile Company manufactures computer technology devices.Selected financial data for Mobile is presented below; use the information to answer the following questions: As of Dec. 31,2010 Dec. 31,2009 Cash and short-term investments \ 1,267,038 \ 616,604 Accounts Receivable (net) 490,816 665,828 Inventories 338,599 487,505 Prepaid Expenses and other current assets \underlind 291,915 Total Current Assets \ 2,388,964 \ 2,061,852 Current Liabilities Short-term borrowings \ 25,190 \ 38,108 Current portion of long-term debt 182,295 210,090 Accounts payable 296,307 334,247 Accrued liabilities 941,912 743,999 Income taxes payable Total Current Liabilities 1.648753 566237 $\text { Selected Income Statement Data - for the year ending December 31, 2010: }$ Net Sales \ 4,885,340 Cost of Goods Sold 2,542,35 Operating Income 733,54 Net Income 230,10 $\text { Selected Statement of Cash Flow Data - for the year ending December } 31,2010:$ Cash Flows from Operations \ 1.156,08 -Refer to the information for Mobile Company.Mobile's Operating Cash Flow to Current Liabilities ratio in 2010 was:

Univariate bankruptcy prediction models help identify factors related to bankruptcy,but they do not provide information about:

The main ratio used by many financial analysts to examine a company's short-term liquidity risk is the current ratio.However,there are a number of problems that arise when this ratio is used to examine short-term liquidity risk that may make the current ratio less useful than initially thought.Discuss the interpretative problems of using the current ratio.

The ________________________________________ ratio indicates the number of times that net income before interest expense and income taxes exceeds interest expense.

The source of risk related to management competence,strategic direction and lawsuits is _________________________.

In general,the shorter the number of days of needed financing,the ____________________ is the cash flow from operations to average current liabilities.

One common problem with the current ratio is that it is susceptible to "window dressing." If prior to the end of the accounting period Saxon Company has a current ratio of 1.5 and management wishes to boost its current ratio it may decide to: