Question

See answer choices in bold.

You are analyzing two companies that manufacture electronic toys—Like Games Inc. and Our Play Inc. Like Games was launched eight years ago, whereas Our Play is a relatively new company that has been in operation for only the past two years. However, both companies have an equal market share with sales of $800,000 each. You’ve collected company data to compare Like Games and Our Play. Last year, the average sales for all industry competitors was $2,040,000. As an analyst, you want to make comments on the expected performance of these two companies in the coming year. You’ve collected data from the companies’ financial statements. This information is listed as follows: (Note: Assume there are 365 days in a year.)

Data Collected (in dollars)

	Like Games	Our Play	Industry Average
Accounts receivable	21,600	31,200	30,800
Net fixed assets	440,000	640,000	1,734,000
Total assets	760,000	1,000,000	1,876,800

Using this information, complete the following statements to include in your analysis.

1.	Our Play has 14.24 OR 9.86 days of sales tied up in receivables, which is much higher OR lower than the industry average. It takes Our Play more OR less time to collect cash from its customers than it takes Like Games.
2.	Like Games’s fixed assets turnover ratio is higher OR lower  than that of Our Play. This is because Like Games was formed eight years ago, so the acquisition cost of its fixed assets is recorded at historic values when the company bought its assets and has been depreciated since then. Assuming that fixed assets prices (not book values) rose over the past six years due to inflation, Our Play paid a lower OR higher amount for its fixed assets.
3.	The average total assets turnover in the electronic toys industry is  1.09x, 37.85x, 8.01x, 2.86x , which means that  $8.01, $1.09, $37.85, $2.86 of sales is being generated with every dollar of investment in assets. A lower OR higher total assets turnover ratio indicates greater efficiency. Both companies’ total assets turnover ratios are lower OR higher than the industry average.

Answer 1

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