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Accounting Homework
a) TJX' current ratio = 1,743,105/1,306,846 = 1.33
b) OshKosh current ratio = 123,962/47,086
Although Oshkosh current assets and liabilities are relatively small compared to TJX, the company's current ratio is much higher. This means that it is in a better relative position to pay its bills
c) There are a few items that might be difficult to turn into cash. For example, deferred income taxes couldn't be converted into cash quickly. Also, it could take a while to sell inventory, collect A/R, or collect on short-term investments.
TJX
Cash
AR
sum
Liabilities
Current
OskK
STI
AR
sum liabilities current
e) The total assets of the company is approximately 2.7 million but the shareholders equity is about 1.2 million. However, the company also has about 1.3 million in current liabilities. Therefore, most of its liabilities are current and most of the financing came from equity financing.
f) TJX would be considered riskier because of its lower current ratio. In the estimate of the things that could easily be converted to cash, the company's current ratio was under 1. This would indicate that the company might have trouble paying its bills. However, the estimate was also very conservative...
Cash equivalents are really easy to convert to cash -- like a checking account in which you can just make a cash withdrawal.
h) Yes, TJX could pay off its short-term debt because it is only a little over two hundred thousand and the company has enough cash. However, this would negatively impact its current ration because the company would have less current assets to pay its current liabilities; if it paid off the long-term ones.
i) Shareholders equity would go up. Cash would also go up for the amount that wasn't spent on new assets.
j) Land and buildings would increase, long-term debt would increase, the current liabilities would increase for the first payment, and cash would also increase for the amount that wasn't spent.
k) TJX holds little long-term debt and has used mostly equity financing. Using long-term debt to finance the new store would balance its liabilities more and likely improve its credit rating in the long-term.
3-3 Microsoft
a) Revenue $25,296 - $22,956 = 2340
b) % growth = 1- (25296/22956) = 10.2%
c) OI = 1- (11,720/11006) = 6.5%
The operating income was less than the % growth in sales. This is due to an increase in the cost of revenue and/or the expenses associated with…
g) In 2001 the cost of revenue grew at a faster rate than the overall gross sales. This basically means that it was paying more to produce its goods and/or services. The company reasonably has figured out a way to reduce its cost of revenue associated with total sales over the previous years.
h) If Microsoft was pushing 2 and 3-year service contracts, then it would collect more money upfront for its services (unearned revenue). Therefore, its cash amounts would increase, but also its liabilities relative to prepaid services that it must provide in the future. The company could also invest the cash from the prepaid accounts and receive some interest income. However, the company probably also has to discount its prepaid services to offer an incentive for companies to purchase these for multiple years.
i) If everything else was the same, then the stock price would decrease because the company would be selling less of its 2 and 3-year contracts. However, it could be the case that the 10% decrease could also be transferred to 1 year contracts or something to that affect. Therefore, it is still possible that total sales could still rise even if unearned revenue decreases. More information would be needed to provide a precise answer.
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