Current ratio and liquidity analysis of TJX and OshKosh

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

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 operating income.

d) 2000 = (9421/22956) = 41%

2001 = (7721/25296) = 30.5%

e)

Microsoft

e) 2000

f) 2001

g) R&D

h) 3772

i) 4397

j) Sales

k) 3772

l) 4379

m) Admin

n) 1050

o) 857

p) sum

q) 10594

r) 11634

s) Sales

t) 22956

u) 25296

v) E/S

w) 46.15%

x) 45.99%

f)

Microsoft

2001

25296

growth

13%

2002

28584.48

Operating E

11950

13576

0.11977

2012 E

15205.12

2002 OE

13379.36

2001 OE

11720

% change

0.12402387

To make the calculations for this question, it was assumed that total sales and total operating expenses would grow at the same rates as in the previous year. Sales was projected to grow by 13% and operating expenses by roughly 12%. This made the OE/Sales grow at about 12.5%.

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.