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    Managerial Finanace: Submitted By: Fatima Asghar

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    Cheque Section Finance Office
    The document provides details on the financial performance of two companies, The R.M Smithers Corporation and Brenmar Sales Company, from last year. It includes calculations of their asset turnover ratio, operating income return on investment, average collection period, account receivables, inventory turnover ratio, and inventory levels. The document poses questions related to setting goals to increase Smithers' asset turnover ratio and determining the impact on their operating income return on investment. It also calculates Brenmar's account receivables and inventory levels based on information provided about their average collection period, credit sales, inventory turnover ratio, and cost of goods sold.

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    Managerial Finanace: Submitted By: Fatima Asghar

    Uploaded by

    Cheque Section Finance Office
    17 views3 pages
    The document provides details on the financial performance of two companies, The R.M Smithers Corporation and Brenmar Sales Company, from last year. It includes calculations of their asset turnover ratio, operating income return on investment, average collection period, account receivables, inventory turnover ratio, and inventory levels. The document poses questions related to setting goals to increase Smithers' asset turnover ratio and determining the impact on their operating income return on investment. It also calculates Brenmar's account receivables and inventory levels based on information provided about their average collection period, credit sales, inventory turnover ratio, and cost of goods sold.

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    Managerial Finance

    Original Title

    Managerial assignment

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    The document provides details on the financial performance of two companies, The R.M Smithers Corporation and Brenmar Sales Company, from last year. It includes calculations of their asset turnover ratio, operating income return on investment, average collection period, account receivables, inventory turnover ratio, and inventory levels. The document poses questions related to setting goals to increase Smithers' asset turnover ratio and determining the impact on their operating income return on investment. It also calculates Brenmar's account receivables and inventory levels based on information provided about their average collection period, credit sales, inventory turnover ratio, and cost of goods sold.

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    © All Rights Reserved
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    17 views3 pages

    Managerial Finanace: Submitted By: Fatima Asghar

    Uploaded by

    Cheque Section Finance Office
    The document provides details on the financial performance of two companies, The R.M Smithers Corporation and Brenmar Sales Company, from last year. It includes calculations of their asset turnover ratio, operating income return on investment, average collection period, account receivables, inventory turnover ratio, and inventory levels. The document poses questions related to setting goals to increase Smithers' asset turnover ratio and determining the impact on their operating income return on investment. It also calculates Brenmar's account receivables and inventory levels based on information provided about their average collection period, credit sales, inventory turnover ratio, and cost of goods sold.

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    of 3

    MANAGERIAL FINANACE

    Submitted by: Fatima Asghar


    Roll#: mbf2100030
    Submitted to: Dr Nauman Afghan
    Class: MBA(Evening)
    Session: 2021-2023

    University of Education
    BUSA7145
    3-4A The R.M Smithers Corporation earned an operating profit margin of 10 percent based on the sales
    of $ 10 million and a total asset of $5 million last year

    a. What was Smither’s total assets turnover ratio?


    𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
    𝐴𝑠𝑠𝑒𝑡 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑟𝑎𝑡𝑖𝑜 =
    𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
    10𝑚𝑖𝑙𝑙𝑖𝑜𝑛
    =
    5𝑚𝑖𝑙𝑙𝑖𝑜𝑛
    = 2𝑚𝑖𝑙𝑙𝑖𝑜𝑛

    b. During the coming year, the company present has set a goal of attaining a total assets
    turnover of 3.5. how much must firm sale raise, other things being the same, for the goal to be
    achieved?
    𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 = 𝑎𝑠𝑠𝑒𝑡 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑟𝑎𝑡𝑖𝑜 × 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
    𝑁𝑒𝑡 𝑠𝑎𝑙𝑒𝑠 = 3.5 × 2𝑚𝑖𝑙𝑙𝑖𝑜𝑛
    = 7000000
    𝑆𝑎𝑙𝑒 𝑅𝑎𝑖𝑠𝑒 = 10000000 − 7000000
    = $3000000 𝑜𝑟 30%

    c. What was Smither’s operating income return on investment last year? Assuming the firm’s
    operating income return on investment be next year if the total asset turnover goal is
    achieved?
    𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑖𝑛𝑐𝑜𝑚𝑒
    𝑅𝑂𝐼 =
    𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
    1000000
    =
    5000000
    = 0.2 𝑜𝑟 20%
    𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 𝑜𝑛 𝑧𝑒𝑟𝑜 𝑖𝑛𝑐𝑜𝑚𝑒 = 1000000
    ________________________________________________________________________

    3-5A The Brenmar Sales Company had a gross profit margin of 30 percent and sales of $9 million last
    year. Seventy-five percent of the firm’s sales are on credit and the remainder are sash sales. Brenmar’s
    current assets equal $1.5 million, its current liabilities equal $300,000 and it has $ 100,000 in cash plus
    marketable securities.

    𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠 = 75% × $ 9 𝑚𝑖𝑙𝑙𝑖𝑜𝑛

    = $6750000

    a. If Brenmar’s accounts receivable are $562,500, what is its average collection period?
    𝑟𝑒𝑐𝑒𝑖𝑣𝑒𝑎𝑏𝑙𝑒
    𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛 𝑝𝑒𝑟𝑖𝑜𝑑 = 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 × 365 𝑑𝑎𝑦𝑠
    𝑐𝑟𝑒𝑑𝑖𝑡 𝑠𝑎𝑙𝑒𝑠
    562500
    = × 365
    6750000
    = 30 𝑑𝑎𝑦𝑠 ( 𝑎𝑝𝑝𝑟𝑜𝑥. )
    b. If Bernmar reduces its average collection period to 20 days, what will be its new level of
    account receivable?
    𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛 𝑝𝑒𝑟𝑖𝑜𝑑 × 𝑐𝑟𝑒𝑑𝑖𝑡 𝑠𝑎𝑙𝑒
    𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑟𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 =
    365 𝑑𝑎𝑦𝑠
    20 × 6750000
    =
    365
    = $369863

    c. Brenmar’s inventory turnover ratio is nine time. What is the level of Brenmar’s inventories?
    𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 = 30% × 9000000
    = 2700000
    𝐶𝑜𝑠𝑡 𝑜𝑓 𝑆𝑎𝑙𝑒𝑠 = 9000000 − 2700000
    = 6300000
    𝑐𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑 𝑠𝑎𝑙𝑒𝑠
    𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑡𝑢𝑟𝑛 𝑜𝑣𝑒𝑟 =
    𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
    6300000
    𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 =
    9
    = $700000

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