Ratio Analysis Analytical Application
Question:
You have been hired as an analyst for Citi Bank and your team is working on an
independent assessment of Bugs Bunny Food Inc. (BBF Inc.) BBF Inc. is a firm that
specializes in the production of freshly imported farm products from Turkey. Your
assistant has provided you with the following data for BBF Inc. and their industry.
2006-
Ratio 2006 2005 2004 Industry
Average
Long-term debt 0.45 0.40 0.35 0.35
Inventory Turnover 62.65 42.42 32.25 53.25
Depreciation/Total Assets 0.25 0.014 0.018 0.015
Days’ sales in receivables 113 98 94 130.25
Debt to Equity 0.75 0.85 0.90 0.88
Profit Margin 0.082 0.07 0.06 0.075
Total Asset Turnover 0.54 0.65 0.70 0.40
Quick Ratio 1.028 1.03 1.029 1.031
Current Ratio 1.33 1.21 1.15 1.25
Times Interest Earned 0.9 4.375 4.45 4.65
Equity Multiplier 1.75 1.85 1.90 1.88
a. In the annual report to the shareholders, the CEO of BBF Inc wrote, “2006 was a
good year for the firm with respect to our ability to meet our short-term obligations.
We had higher liquidity largely due to an increase in highly liquid current assets
(cash, account receivables and short-term marketable securities).” Is the CEO
correct? Explain and use only relevant information in your analysis.
b. What can you say about the firm's asset management? Be as complete as possible
given the above information, but do not use any irrelevant information.
c. You are asked to provide the shareholders with an assessment of the firm's solvency
and leverage. Be as complete as possible given the above information, but do not use
any irrelevant information.
Question:
You have been hired as an analyst for Citi Bank and your team is working on an
independent assessment of Bugs Bunny Food Inc. (BBF Inc.) BBF Inc. is a firm that
specializes in the production of freshly imported farm products from Turkey. Your
assistant has provided you with the following data for BBF Inc. and their industry.
2006-
Ratio 2006 2005 2004 Industry
Average
Long-term debt 0.45 0.40 0.35 0.35
Inventory Turnover 62.65 42.42 32.25 53.25
Depreciation/Total Assets 0.25 0.014 0.018 0.015
Days’ sales in receivables 113 98 94 130.25
Debt to Equity 0.75 0.85 0.90 0.88
Profit Margin 0.082 0.07 0.06 0.075
Total Asset Turnover 0.54 0.65 0.70 0.40
Quick Ratio 1.028 1.03 1.029 1.031
Current Ratio 1.33 1.21 1.15 1.25
Times Interest Earned 0.9 4.375 4.45 4.65
Equity Multiplier 1.75 1.85 1.90 1.88
a. In the annual report to the shareholders, the CEO of BBF Inc wrote, “2006 was a
good year for the firm with respect to our ability to meet our short-term obligations.
We had higher liquidity largely due to an increase in highly liquid current assets
(cash, account receivables and short-term marketable securities).” Is the CEO
correct? Explain and use only relevant information in your analysis.
b. What can you say about the firm's asset management? Be as complete as possible
given the above information, but do not use any irrelevant information.
c. You are asked to provide the shareholders with an assessment of the firm's solvency
and leverage. Be as complete as possible given the above information, but do not use
any irrelevant information.
