(a). Omron Enterprise is planning to use trade credit as short-term finance. The owner has approached your...
Question:
(a). Omron Enterprise is planning to use trade credit as short-term finance. The owner has approached your company to buy goods on credit. The value of stock including the profit is around $920,000. Omron Enterprise records in 2019 were as follows:
1. The quick ratio deviated from the min and max rate by 35%.
2. The financial leverage equals the rate of the minimum under CART Model.
2. The Times-Interest-Earned (TIE) equals 5.4.
Required:
As a specialist, you have been requested to provide a reliable opinion on to give or not to give credit facilities to Omron Enterprise, bearing in mind that Omron Enterprise was established as active enterprise on 24 December 2011.
(b). Masen Enterprise is operating business in the gulf. To cope the competitiveness of the GCC’s market, Masen Enterprise is looking for optimal capital structure and good operational and financial indicators. The following information was derived from the enterprise records of 2019.
Sales (Q) | 450,000 |
Price per unit | $25 |
Contribution margin ratio | 45% |
Gross profit ratio | 32% |
Fixed operating cost | 1,200,000 |
Interest amount | 190,000 |
Tax rate | 15% |
Required:
Compute DOL, DFL and DCL of the Masen Enterprise in 2019. Provide complete elaboration to the derived results of DFL, DOL and DCL.
Auditing and Assurance Services A Systematic Approach
ISBN: 978-1259162343
9th edition
Authors: William Messier, Steven Glover, Douglas Prawitt