Question

In: Finance

Green caterpiller garden supplies inc did not issue new shares during these three years and has...

Green caterpiller garden supplies inc did not issue new shares during these three years and has faced some operational difficulties. The company has thus piloted some new forecasting strategies to improve its operations management. You have collected the relevant data, made reasonable assumptions based on the information available, and calculated the following ratios. Ratios Calculated

Year 1 Year 2 Year 3

Price to cash flow 4.60 5.98 6.70

Inventory turnover 9.20 11.04 12.37

Debt to equity 0.60 0.64 0.77

Based on the preceding information, your calculations, and your assumptions, which of the following statements can be included in your analysis report? Check all that apply.

Green caterpiller supplies inc's ability to meet its debt obligations has worsened since its debt to equity ratio has increased from 0.60 to 0.77

An improvement of the inventory turnover ratio could likely be explained by the new sales forecasting strategies that led to better inventory management

A plausible reason why Green caterpiller supplies inc's price to cash flow ratio has increased is that investors expect higher cash flow per share in the future

The companies creditworthiness has improved over these three years as evidenced by the increase of its debt to equity ratio over time

Solutions

Expert Solution

Option 1 :

Debt to Equity Ratio = (Short Term Debt + Long Term Debt + Other Fixed Payment) / Shareholder's Equity

As you can see, the Debt to Equity Ratio has increased every year from 0.60 to 0.77, the first statement is true that the Green Caterpiller Supplies inc's ability to meet debt obligations has worsened.

Option 2:

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventories

The Inventory Turnover Ratio has improved and it can be explained by new sales forecasting strategies because with the help of such strategies, inventory management becomes easier which will affect the denominator. And better sales forecasting strategies will also help in controlling cost of goods sold. Hence statement 2 is true.

Option 3 :

Price to Cash Flow = Share Price / Cash Flow Per Share

Increase in Price to cash flow ratio means that the company is over valued. Essentially Investors are expecting the cash flow to get better and in anticipation of that, investors are ready to pay high amount against the existing cash flow. Hence Option 3 is true.

Option 4 :

This statement is not necessarily true. The debt of the company can increase by leasing the fixed assets of company which does not imply good credit worthiness. Hence to study the credit worthiness, only debt to equity ratio is not sufficient. so Option 4 is not true.


Related Solutions

1. The AFN equation Green Caterpillar Garden Supplies Inc. has the following end-of-year balance sheet: Green...
1. The AFN equation Green Caterpillar Garden Supplies Inc. has the following end-of-year balance sheet: Green Caterpillar Garden Supplies Inc. Balance Sheet For the Year Ended on December 31 Assets Liabilities Current Assets: Current Liabilities: Cash and equivalents $150,000 Accounts payable $250,000 Accounts receivable 400,000 Accrued liabilities 150,000 Inventories 350,000 Notes payable 100,000 Total Current Assets $900,000 Total Current Liabilities $500,000 Net Fixed Assets: Long-Term Bonds 1,000,000 Net plant and equipment(cost minus depreciation) $2,100,000 Total Debt $1,500,000 Common Equity Common...
Green Caterpillar Garden Supplies Inc. reported sales of $743,000 at the end of last year; but...
Green Caterpillar Garden Supplies Inc. reported sales of $743,000 at the end of last year; but this year, sales are expected to grow by 9%. Green Caterpillar expects to maintain its current profit margin of 24% and dividend payout ratio of 15%. The firm’s total assets equaled $425,000 and were operated at full capacity. Green Caterpillar’s balance sheet shows the following current liabilities: accounts payable of $80,000, notes payable of $45,000, and accrued liabilities of $65,000. Based on the AFN...
Suppose Green Caterpillar Garden Supplies Inc. is evaluating a proposed capital budgeting project (project Alpha) that...
Suppose Green Caterpillar Garden Supplies Inc. is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $450,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $350,000 Year 2 $425,000 Year 3 $500,000 Year 4 $400,000 1. Green Caterpillar Garden Supplies Inc.’s weighted average cost of capital is 8%, and project Alpha has the same risk as the firm’s average project. Based on the cash flows, what...
Green Thumb Garden Supplies reported the following information for 2017 and 2018.                             &nbsp
Green Thumb Garden Supplies reported the following information for 2017 and 2018.                                                                                        2018           2017        Assets        Cash                                                                 $ 50,000    $ 45,000        Accounts receivable                                             35,000        25,000        Inventory                                                             25,000        20,000        Property, plant, and equipment                         240,000      210,000        Total assets                                                      $350,000    $300,000        Liabilities and Shareholders’ Equity        Current liabilities                                             $ 65,000    $ 60,000        Non-current liabilities                                        110,000        90,000        Shareholders’ equity—common                        175,000      150,000        Total liabilities and shareholders’ equity        $350,000    $300,000        Income statement for 2018        Sales                                                                  $95,000        Cost of goods sold                                               45,000       ...
Green Thumb Garden Supplies reported the following information for 2017 and 2018.                             &nbsp
Green Thumb Garden Supplies reported the following information for 2017 and 2018.                                                                                        2018           2017        Assets        Cash                                                                 $ 50,000    $ 45,000        Accounts receivable                                             35,000        25,000        Inventory                                                             25,000        20,000        Property, plant, and equipment                         240,000      210,000        Total assets                                                      $350,000    $300,000        Liabilities and Shareholders’ Equity        Current liabilities                                             $ 65,000    $ 60,000        Non-current liabilities                                        110,000        90,000        Shareholders’ equity—common                        175,000      150,000        Total liabilities and shareholders’ equity        $350,000    $300,000        Income statement for 2018        Sales                                                                  $95,000        Cost of goods sold                                               45,000       ...
Lush Garden supplies uses a perpetual inventory system. Lush Garden supplies has these account balaces at...
Lush Garden supplies uses a perpetual inventory system. Lush Garden supplies has these account balaces at July 31, 20X6, prior to making the year end adjustments: Inventory (Beg bal: 11,500, End bal: 18,000), COGS (bal: 76,000), Sales Revenue (161,000). A year ago, the NRV (net realizable value) cost of ending inventory was 12,000 which exceeded cost of 11,500. Lush Garden Supplies has determined that the NRV cost of the July 31, 20X6, ending inventory is 14,800. Prepare the company's 20X6...
Use the following information to answer questions 7 – 10. Green Thumb Garden Supplies reported the...
Use the following information to answer questions 7 – 10. Green Thumb Garden Supplies reported the following information for 2017 and 2018. ​​​2018​2017 ​Assets ​Cash​​$ 50,000​$ 45,000 ​Accounts receivable​​35,000​25,000 ​Inventory​​25,000​20,000 ​Property, plant, and equipment​​ 240,000​ 210,000 ​Total assets​​$350,000​$300,000 ​Liabilities and Shareholders’ Equity ​Current liabilities​​$ 65,000​$ 60,000 ​Non-current liabilities​​110,000​90,000 ​Shareholders’ equity—common​​ 175,000​ 150,000 ​Total liabilities and shareholders’ equity​​$350,000​$300,000 ​Income statement for 2018 ​Sales​​$95,000 ​Cost of goods sold​​ 45,000 ​Gross profit​​50,000 ​Operating expenses​​ 15,000 ​Income before income tax​​35,000 ​Income tax expense​​ 5,000...
Fast Cars Inc. was authorized to issue 50,000 $1.50 preferred shares and 300,000 common shares. During...
Fast Cars Inc. was authorized to issue 50,000 $1.50 preferred shares and 300,000 common shares. During 2020, its first year of operations, the following selected transactions occurred: Jan. 1 4,100 of the preferred shares were issued at $11.00 per share; cash. Feb. 5 15,000 of the common shares were issued for a total of $117,000; cash. Mar. 20 3,000 of the common shares were given to the organizers of the corporation regarding their efforts. The shares were valued at a...
Fast Cars Inc. was authorized to issue 50,000 $1.50 preferred shares and 300,000 common shares. During...
Fast Cars Inc. was authorized to issue 50,000 $1.50 preferred shares and 300,000 common shares. During 2020, its first year of operations, the following selected transactions occurred: Jan. 1 4,300 of the preferred shares were issued at $13.00 per share; cash. Feb. 5 15,000 of the common shares were issued for a total of $119,000; cash. Mar. 20 3,000 of the common shares were given to the organizers of the corporation regarding their efforts. The shares were valued at a...
Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the second quarter.
Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the second quarter. The company usually has to borrow money during this quarter to support peak sales of lawn care equip­ment, which occur during May. The following information has been assembled to assist in preparing a cash budget for the quarter: a. Budgeted monthly absorption costing income statements for April-July are:   April May June July Sales ... $600,000 $900,000 $500,000 $400,000 Cost of goods sold ... 420,000...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT