Question

**In the Altman Z calculation one of the
ratios was retained earnings/total assets. What is the impact on
the numerical value of the ratio if**

**a)**** ****Accounts
receivable are collected? Briefly explain.**

**b)**** **
**The firm operates at a profit but cuts to zero its
dividend? Briefly explain.**

Answer #1

A) | When accounts receivable are collected there is a decrease in Accounts receivable and | ||

increase in Bank/Cash. Therefore, the net effect in the Asset side is NIL. | |||

Also, this transaction does not affect Retained earnings. | |||

Therefore, no change in the numberical value of the ratio. | |||

B) | Dividend is usually paid from Retained earnings. So by paying no dividend, the retained earnings | ||

increase. | |||

Also when dividend is paid out, the bank account balance decreases. | |||

Therefore, there is an increase in the ratio by not paying the dividend. |

In the Altman Z calculation one of the
ratios was retained earnings/total assets. What is the impact on
the numerical value of the ratio if
a) Accounts
receivable are collected? Briefly explain.
b) The firm
breaks even but maintains its dividend? Briefly
explain.

Bankruptcy Risk and Z-Score Analysis
Following are selected ratios for JetBlue Airways for two recent
fiscal years.
Ratio
2012
2011
Current ratio
0.684
1.153
Working capital to total assets
(0.072)
0.031
Retained earnings to total assets
0.061
0.043
EBIT to total assets
0.053
0.046
Market value of equity to total liabilities
0.278
0.251
Sales to total assets
0.705
0.637
Compute and interpret Altman Z-scores for the company for both
years. (Do not round until your final answer; then round your...

Bankruptcy Risk and Z-Score Analysis
Following are selected ratios for JetBlue Airways for two recent
fiscal years.
Ratio
2010
2009
Current ratio
1.253
1.326
Working capital to total assets
0.042
0.058
Retained earnings to total assets
0.033
0.019
EBIT to total assets
0.050
0.040
Market value of equity to total liabilities
0.390
0.320
Sales to total assets
0.573
0.503
Compute and interpret Altman Z-scores for the company for both
years. (Do not round until your final answer; then round your...

Bankruptcy Risk and Z-Score Analysis
Following are selected ratios for JetBlue Airways for two recent
fiscal years.
Ratio
2016
2015
Current ratio
0.604
0.705
Working capital to total assets
(0.069)
(0.104)
Retained earnings to total assets
0.258
0.194
EBIT to total assets
0.138
0.141
EBITDA to total assets
0.180
0.181
Market value of equity to total liabilities
1.380
1.342
Sales to total assets
0.699
0.742
Compute and interpret Altman Z-scores for the company for both
years. (Do not round until...

Tropical, Inc. has provided the following financial
information in its application for a loan.
Assets Liabilities and Equity
___________________________________________________
Cash $ 20 Accounts Payable $ 30
Accounts Receivables $ 90 Notes Payable $ 90
Inventory $ 90 Accruals $ 30
Long Term Debt $150
Plant and equipment $500 Equity $400
-----------------------------------------------------------------------------------
Also assume sales = $500, cost of goods sold = $360, taxes =
$56, interest payments = $40, net income = $44, the dividend payout
ratio is 50%, and...

ollowing are selected ratios for Logitech International SA for
the company’s 2016 and 2015 fiscal years. Compute and interpret
Altman Z-scores for both years.
Ratio
2016
2015
Working capital to total assets
0.386
0.390
Retained earnings to total assets
0.728
0.652
EBIT to total assets
0.097
0.108
Market value of equity to total assets
1.951
1.516
Market value of equity to total liabilities
4.580
3.235
Sales to total assets
1.524
1.405
Round answers to three decimal places.
Year
Z-score
2016...

Suppose that the financial ratios of a potential borrowing firm
took the following values: X1 = Net working capital/Total assets =
0.20, X2 = Retained earnings/Total assets = 0.30, X3 = Earnings
before interest and taxes/Total assets = 0.21, X4 = Market value of
equity/Book value of long-term debt = 0.50, X5 = Sales/Total assets
ratio = 0.8. Calculate the Altman’s Z-score for this firm.

Review of Financial Ratios
In its closing financial statements for its first year in
business, the Runs and Goses Company, had cash of $242, accounts
receivable of $850, inventory of $820, net fixed assets of $3,408,
accounts payable of $700, short-term notes payable of $740,
long-term liabilities of $1,100, common stock of $1,160, retained
earnings of $1,620, net sales of $2,768, cost of goods sold of
$1,210, depreciation of $360, interest expense of $160, taxes of
$312, addition to retained...

The debt-to-total assets ratio is primarily a measure of:
profitability
solvency
earnings per share
liquidity
2. Entity X uses the allowance method for estimating bad debt
expense and has a normal balance in the Allowance for Doubtful
Accounts. When Entity X writes off an account
receivable:
the customer's account must be restored and then cash
collected.
the cash (net) realizable value of the accounts receivable
account is unchanged.
bad debt expense increases.
none of the above.
3.Depreciation and amortization are:...

The ratio of Total
Loans / Total Assets is one measure of the a firm's 'Asset /
Liability Management which also impacts the profitability of a firm
in the following way:
Question 2 options:
All other factors held
constant, the greater the ratio of Total Loans / Total Assets, the
greater a firm's earnings and profitability will be.
All other factors held
constant, the greater the ratio of Total Loans / Total Assets, the
smaller a firm's earnings and profitabilitiy...

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