Problem:
The Sherman Company has been in the process of making small tanks and light armored vehicles for the past twenty years. Their clients cannot expend the kinds of funds necessary to acquire main battle tanks or other large scale weaponry, so their niche is very secure. Rommel/Patton Industries, a large tank builder, would like to acquire Sherman to diversify it's holdings in that market but has asked several financial questions about the company before obligating themselves to purchase what could be horrible company. Given the following information as of June 30, 2011 (the fiscal year end) regarding the Sherman Company, you, the Chief Fiscal Officer for Rommel/Patton industries, must answer questions 05-07.
Selected information from the Balance Sheet and or Financial data as of 6/30/2011
Current Assets:
Cash & Cash Equivalents $75,150
Accounts Receivable (net) $33,980
Inventories $12,450
Total Current Assets $121,580
Purchases $148,000
Property, Plant, and Equipment $790,225
Net Sales $1,500,045
Total Assets $911,805
Net Income $553,000
Current Liabilities:
Accounts Payable $37,800
Unearned Revenues $14,591
Total Current Liabilities $52,391
Earnings Per Share $8.30
Long Term Liabilities:
Bonds Payable $525,445
Total Liabilities $577,836
Accounts Receivable Beginning Balance (net) (07-01-2010) $42,520
Stockholder's Equity:
Common Stock, $10 par value; 80000 shares authorized; 65,995 issued $459,950
Preferred Stock, $20 par value;10,000 shares authorized; 10,000 issued $200,000
Retained Earnings $251,855
Total Liabilities and Stockholder's Equity $911,805
Market Price Per Share-Preferred $29.00
Market Price Per Share-Common $17.00
Question 1. Please calculate Sherman's Current Ratio to see if they can even meet their short term debts with their short term assets.
A. 2.32 to 1
B. 2.30 to 1
C. 4.98 to 1
D. 1.19 to 2
Question 2. Please calculate Sherman's Quick Ratio to get an even more accurate account as to their ability to pay their short term debtors.
A. Cannot be calculated with the given information
B. 2.32 to 1
C. 39.22 to 1
D. 2.08 to 1
Question 3. Please calculate Sherman's Accounts Receivable Turnover so that you may see how many times per period they are cycling through their receivables.
A. 19.95
B. 23.40
C. 14.65
D. 39.22.