Question

1. Based on a calculation, what can you say about the company's liquidity position?

2. Based on the current and cash ratios, how long does it take Tiger Inc to turn sales into cash

Current Ratio is 2.428 and cash ratio is 0.303 Inventory turnover is 3.73 Days sales outstanding is 45.1

3. Using Tiger’s data and its industry averages, how well run would you say Tiger appears to be in comparison with other firms in its industry? What are its primary strengths and weaknesses? Be specific in your answer, and point to various ratios that support your position.

Tiger Inc: December 31 Balance Sheets (Thousands of Dollars)			Tiger Inc December 31 Income Statements (Thousands of Dollars)
Assets	2019			2019
Cash and cash equivalents	$20,000		Sales	$425,000
Accounts Receivable	52,500		COGS	327,000
Inventories	87,750		Depreciation and Amortization	17,480
Total current assets	$160,250		EBIT	$80,520
Net fixed assets	218,500		Interest Expense	5,740
Total assets	$378,750		EBT	$74,780
Liabilities and equity			Taxes (40%)	29,912
Accounts payable & accruals	$66,000		Net Income	$44,868
Line of credit	0		Common Dividends	$18,125
Total current liabilities	$66,000		Addition to Retained Earnings	$26,743
Long-term debt	67,500
Total liabilities	$133,500
Common stock	183,175
Retained Earnings	62,075
Total common equity	$245,250
Total liabilities and equity	$378,750
Other Data
	2019
Exp. Sales growth rate	11.00%
Interest rate on LT debt	7.00%
Interest rate on LOC	5.00%
Dividend growth rate	9.00%
Tax rate	40%

Answer 1

Here is my Answer for the above question

1. Tiger Inc liquidity position

Financial Liquidity refers to how easily assets can be converted into cash. Assets like stocks and bonds are very liquid since they can be converted into cash with in Days.

Below are Three common ratios used to measure a companies liquidity or how well a company can liquidate its Assets to meet its current obligations

1.Current ratio or WOrking capital ratio : Current Assets/Current liabilities: $160250/$66000 = 2.428

2. Quick ratio/Acid test ratio: Current assets excludes inventory/ Current liabilities: $72500/$66000=1.098

3. The operating cash flow ratio: Operating cashflows/Current liabilities: $97730/$66000=10480

(operating cash flow = net income+noncash expenses-working capital changes)

The above all the three ratios indicate that the comapny is in good liquidity position.

2.How long does it take to turn sales into cash

Current ratio is 2.428,cash ratio is 0.303, inventory turnover 3.73 days, sales outstanding is 45.1

Cash conversion cycle = Days of Inventory outstanding+ Days of sales outstanding-days payables outstanding

Days payables outstanding ratio is Avg Accounts payable/COGS per day= $66000/895.89=74 day

(Assumed that Accounts payable outstanding at the end of the year is AvgAccounts payable)

Cash convertion cycle = 3.73+45.1-73.6=-24.77

The shorter cash conversion cycle is, the better. If CCC is a low or (better yet) negative number, that means working capital isn't tied up for long, and your business has greater liquidity.

3. Tiger Inc Strength and weaknesses

1. The strength of a company's balance sheet can be evaluated by three investment-quality measurements

2. The cash conversion cycle shows how efficiently a company manages its accounts receivable and inventory.

3. The fixed asset turnover ratio measures how much revenue is generated from the use of a company's total assets.

4. The return on assets ratio shows how well a company is using its assets to generate profit or net income.

1. based on cash convertion cycle of Tiger Inc evaluated that the company is efficiently manages its Accounts receivables and Inventory and company is in good liquidity position

2. Fixed Assets turnover ratio: Net sales/ Avg Fixed Assets= $425000/$218500=1.945, this ration tells that the company how efficiently using its Assets to generate revenue, by this ratio shows that assets are efficiently used in the business

3.Return on Assts ratio:Net Income/Avg total Assets: $44868/$378750=0.1184*100=11.84%

by this ratio it shows that comany has 11.84% of return on assets of the company this is also good ratio

Calculation of debt equity ratio : Total Liabilities/ shareholders Equity: $378750/$245250= 1.54

So the debt equity ratio also morethan 1 so comany not in a risk position

Here in Tiger Inc the Interest rate on LT debt and LOC is quite more compare to industry, if the company can reduce this rates, it would be beneficial to the company.