Analysis of Electronic Toys Companies
How do Like Games Inc. and Our Play Inc. compare in terms of expected performance in the coming year?
1. Our Play has days of sales tied up in receivables, which is much higher than the industry average. Does this indicate a potential issue with cash flow?
2. How does the acquisition cost of fixed assets affect Our Play's financial position compared to the industry average?
3. What does the high average total assets turnover in the electronic toys industry suggest for both Like Games and Our Play?
4. How often did Monroe Manufacturing sell and replace its inventory in the past year?
Analysis of Electronic Toys Companies
1. Our Play has days of sales tied up in receivables, which is much higher than the industry average. It takes Our Play longer to collect cash from its customers compared to Like Games. This indicates that Our Play may have less efficient credit and collection policies, leading to a higher average collection period (days sales outstanding ratio). It's important for Our Play to improve its receivables management to reduce the time it takes to convert sales into cash, which would positively impact their cash flow and overall financial performance.
2. The acquisition cost of Our Play's fixed assets is recorded at historic values when the company bought its assets and has been depreciated since then. Assuming that fixed asset prices (not book values) have risen over the past six years due to inflation, Our Play may have undervalued its fixed assets on the balance sheet. This could result in a lower net asset value and potentially affect the company's ability to accurately reflect its true financial position. To provide a more accurate representation, it would be beneficial for Our Play to consider revaluing its fixed assets periodically to reflect their current market values.
3. The average total assets turnover in the electronic toys industry is higher than the industry average. This implies that companies in the industry are generating more sales with a lower investment in total assets. Both Like Games and Our Play should aim to improve their asset management efficiency to achieve a higher total asset turnover ratio. This can be done by optimizing inventory levels, reducing accounts receivable collection periods, and effectively utilizing fixed assets. By doing so, the companies can generate more revenue per dollar of assets employed, indicating better operational efficiency and financial performance.
4. The inventory turnover ratio across companies in the manufacturing industry is stated as 28.391x. However, the frequency of selling and replacing inventory for Monroe Manufacturing cannot be determined based on the information provided. The inventory turnover ratio requires the cost of goods sold figure, which is not given for Monroe Manufacturing. Therefore, no conclusive statement can be made about the inventory turnover for Monroe Manufacturing.