Author Question: Using the ratios and information given below for SportsOutlet.com, analyze the short-term liquidity ... (Read 106 times)

cartlidgeashley · **on:** Jul 6, 2018

Using the ratios and information given below for SportsOutlet.com, analyze the short-term liquidity and operating efficiency of the firm.

2015 2014
Current ratio 1.50 1.35
Quick ratio 1.15 1.08
Cash flow liquidity ratio 1.39 1.32
Average collection period 10 days 7 days
Days inventory held 35 days 28 days
Days payable outstanding 86 days 79 days
Cash conversion cycle (41 days) (44 days)
Fixed asset turnover 27.36 times 22.14 times
Total asset turnover 1.93 times 2.21 times
Cash flow from operations (in millions) 523 376
Net sales (in millions) 6,743 5,187

What will be an ideal response?

Question 2

Explain the difference between Form W-2 and W-4 including why each form is needed by employers to complete payroll activities.

bookworm410 · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

Short-term liquidity at SportsOutlet.com is good and improving from 2014 to 2015 . The current and quick ratios are both above one to one, as is the cash flow liquidity ratio. The firm's accounts receivable collection period has increased by three days but is still a very low 10 days. Days inventory held has also increased by seven days and is now at 35 days. SportsOutlet.com is taking seven days longer to pay their accounts payable. As long as SportsOutlet.com is paying their suppliers in a timely manner, the 86 days payable outstanding is allowing the firm to collect their cash from customers before they pay their suppliers. This is good cash management and causes the negative cash conversion cycle; however, if the firm's suppliers expect payment sooner than 86 days, SportsOutlet.com is risking the loss of suppliers.

Fixed asset turnover has improved which means the level of sales growth is more than any increases in fixed assets. Despite the increase in fixed asset turnover, total asset turnover has declined. If the magnitude of accounts receivable and inventories is greater than fixed assets, the decline in total asset turnover can be explained by the decline in accounts receivable and inventory turnovers. It is also possible that SportsOutlet.com has large amounts of cash, investments and goodwill which could cause the total asset turnover to be lower.

Overall SportsOutlet.com has good liquidity and operating efficiency.

Answer to Question 2

The W-2 form is a summary of each employee's earnings and tax deductions for the year. The W-4 form is completed by the employee and provides the employer with the necessary information to determine tax withholding from the employee's gross pay.