Milwaukee Surgical Supplies for MSS,

Milwaukee Surgical Supplies

For MSS, the average collection period is a weighted average of the three different collection times. This is as follows: (.3)(10)+(.4)(30)+(.3)(40)

= 27 days.

The firm's current accounts receivable balance will be figured out by calculating the average daily sales and then multiplying this by the average days receivable. The average daily sales is calculated as: $1,200,000 / 360

= $33,333.33.

Thus, the current accounts receivable balance will be $33,333.33 *

= $900,000.

If all non-discount customers paid on the 30th day, the new average collection period would be: (.3)(10) + (.7)(30) = 24 days.

The new receivables balance given this would be $33,333.33 * 24 = $800,000.

The difference between the receivables level before and after is $900,000 - $800,000 = $100,000. Financing this at 8% per year would cost $8,000. ($100,000)(.08). This is the amount that would be saved by tightening the credit policy.

Financial statement analysis is based specifically on financial statements. This type of analysis includes ratio analysis, common size analysis and time series analysis. Financial accounting underlies financial statement analysis, since financial statement analysis is based on the output of financial accounting. As a result of using standardized statements as the basis for analysis, the indicators and ratios that are used will also be standardized, allowing for cross-period and cross-firm comparison.

Operating indicator analysis is typically based on the output of managerial accounting. The measures are typically not based on financial statements but on other measures the firm devises. These measures are not standardized, and therefore vary from firm to firm. They are only useful for comparison over time, internally, because of their proprietary nature. Some operating indicators are common to the industry, however, but the specific definitions and rules for their calculation may not be standardized between firms.

Both types of analysis are useful for health services managers because both provide insight into the firm's performance. The financial statement analysis provides some insight into the firm's financial performance but also can contribute insight into other areas. Operating indicators are typically not focused on financial measures but rather provide insight into practical issues. When the two are put together, this delivers value for the health services manager.

6. The market multiple approach to business valuation begins with the firm's net income. This approach is typically used to value firms that are not publicly traded, because publicly traded firms already have the value determined by the market. The underlying philosophy of the market multiple approach is that the firm can be valued by comparing it to a firm whose value is known.

Thus, the second step in this approach is to determine an adequate comparable firm. The comparable firm should be in the same industry and should have roughly the same market share and other characteristics. The more similar the comparable firm is to the firm being valued, the better the valuation will be. Once a comparable firm is chosen, the valuation of that firm is determined in the form of the price/earnings ratio. The P/E ratio reflects the market's view of the firm's future prospects, based on its current state of financial health.