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    Growing Too Fast Compared To Net Income and The Increase in Expenses (COGS and Operating Cost)

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    Sannithi Yamsawat
    Magnetronics' earnings before interest and taxes were $2,528 in 1999 with interest charges of $517, resulting in a times interest earned ratio of 4.89, deteriorating from 7.12 in 1995. Magnetronics owed suppliers $2,820 in 1999, an increase from 1995 and representing 9.49% of cost of goods sold, up from 8.42% in 1995. Magnetronics' profitability deteriorated from a return on equity of 15.2% in 1995 to 10.7% in 1999 due to equity growing faster than net income and increased expenses. The company's financial risk increased between 1995 and 1999.

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    Growing Too Fast Compared To Net Income and The Increase in Expenses (COGS and Operating Cost)

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    Sannithi Yamsawat
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    Magnetronics' earnings before interest and taxes were $2,528 in 1999 with interest charges of $517, resulting in a times interest earned ratio of 4.89, deteriorating from 7.12 in 1995. Magnetronics owed suppliers $2,820 in 1999, an increase from 1995 and representing 9.49% of cost of goods sold, up from 8.42% in 1995. Magnetronics' profitability deteriorated from a return on equity of 15.2% in 1995 to 10.7% in 1999 due to equity growing faster than net income and increased expenses. The company's financial risk increased between 1995 and 1999.

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    Magnetronics' earnings before interest and taxes were $2,528 in 1999 with interest charges of $517, resulting in a times interest earned ratio of 4.89, deteriorating from 7.12 in 1995. Magnetronics owed suppliers $2,820 in 1999, an increase from 1995 and representing 9.49% of cost of goods sold, up from 8.42% in 1995. Magnetronics' profitability deteriorated from a return on equity of 15.2% in 1995 to 10.7% in 1999 due to equity growing faster than net income and increased expenses. The company's financial risk increased between 1995 and 1999.

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    4 views1 page

    Growing Too Fast Compared To Net Income and The Increase in Expenses (COGS and Operating Cost)

    Uploaded by

    Sannithi Yamsawat
    Magnetronics' earnings before interest and taxes were $2,528 in 1999 with interest charges of $517, resulting in a times interest earned ratio of 4.89, deteriorating from 7.12 in 1995. Magnetronics owed suppliers $2,820 in 1999, an increase from 1995 and representing 9.49% of cost of goods sold, up from 8.42% in 1995. Magnetronics' profitability deteriorated from a return on equity of 15.2% in 1995 to 10.7% in 1999 due to equity growing faster than net income and increased expenses. The company's financial risk increased between 1995 and 1999.

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    of 1

    3.

    Magnetronics’ earnings before interest and taxes were $2,528 in 1999 and its
    interest charges were $517. Its time interest earned was 4.89 times. This
    represented a deterioration from the 1995 level of 7.12 times.

    2,572
    1995: 361
    = 7. 12

    2,528
    1999: 517
    = 4. 89

    4. Magnetronics owed its supplier $2,820 at year-end 1999. This represented 9.49%
    cost of goods sold and was an increase from 8.42% at year-end 1995. The
    company appears to be less prompt in paying its suppliers in 1999 than it was in
    1995.

    1,615
    1995: 19,183
    = 8. 42%

    2,820
    1999: 29,700
    = 9. 49%

    5. The deterioration in Magnetronics’ profitability, as measured by its return on


    equity, from 15.2% in 1995 to 10.7% in 1999 resulted from the owners’ equity
    growing too fast compared to net income and the increase in expenses (COGS
    and operating cost).

    6. The financial riskiness of Magnetronics increased between 1995 and 1999.

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