Question: Explain how the ratios help identify the strengths and weaknesses of the facility and the management team.
The students will use Financial Ratios to analyze a potential strategic acquisition.
The student will use the Financial Ratios to evaluate the current management team's ablity to make good long term and short term decisions. Should Acme continue to employ the current management team. If Beechtree is acquired, do we keep its management team or do build a new one
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Ratio
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Formula
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Standard
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Beechtree
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Current Ratio (Liquidity)
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Current Assets/Current Liabilities
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1.3
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1.15
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Quick Ratio (liquidity)
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(Current Assets-Supplies on hand)/Current Liabilities
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1.2
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.9
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Days Cash on Hand (liquidity)
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(Cash on Hand +Market Securities)/((Tot Operating Exp-Depreciation Exp)/365)
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50
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35
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Days in Net Receivable (liquidity)
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(Accounts Receivable +Notes Receivable + Other Receivable-allowance for uncollectable)/(Tot Operating Revenue/365)
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49
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65
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Debt Service Coverage Ratio (solvency)
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Net Operating Income/(Principal +interest + lease payment
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>1
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.89
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Operating Margin (profitability)
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Operating Income/Total Operating Revenue
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>.05
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-.005
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Return on Total Assets (profitability)
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Net Operating Income/Total Assets
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1.1
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.9
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Net Operating Income for this financial statement=Decrease in unrestricted net assets + Interest Expense + Depreciation.