Risk Management TechniquesOctober 31, 2020
Fast moving & low value products VERSUS the slow moving & high value productsOctober 31, 2020
Last year Conklin, Inc. had a total assets turnover of 1.33 and an equity multiplier of 1.75. Its sales were $295,000 and its net income was $10,600. The CFO believes that the company could have operated more efficiently, lowered its costs, and increased its net income by $10,250 without changing its sales, assets, or capital structure.
- Had it cut costs and increased its net income by $10,250, how much would the ROE have changed?
- If increasing sales or improving margins is not possible how can the firm improve its ROE? What are the pros and cons of this approach?The Manor Corporation has $500,000 of debt outstanding, and it pays an interestrate of 10% annually: Manor’s annual sales are $2 million, its average tax rate is30%, and its net profit margin on sales is 5%. If the company does not maintain aTIE ratio of at least 5 to 1, then its bank will refuse to renew the loan and bank?ruptcy will result. What is Manor’s TIE ratio?