Milwaukee Surgical Supplies, Inc., sells on terms of 3/10, net 30. Grosee sales for the year are $1,2000,000 and the collections department estimates that 30% of the customers pay on the tenth day and take discounts, 40% pay on the thirtieth days, and remaining 30% pay, on average, 40 days after the purchase. (Assume 360 days/year)
1. Calculate the firm's average collection period.
2.Calculate the firm's current receivables balance.
3.Calcutate the firm's new receivables balance if Milwaukee Surgical toughened up on its collection policy, with the result that all non-discount customers paid on the 30th day.
4. Assuming the cost to the firm to carry receivables is 8% per annum, calculate the annual saving resulting from the toughened credit policy. (Assume the entire amount of receivable had to be financed.)
5. What is the primary difference between financial statement analysis and operating indicator analysis and why are both types useful to health services managers?
6. Describe the mechanics of the market multiple approach to business valuation.
posting the whole question is asking for the tutors to do the whole answer for you which is alot im pretty sure if you payed attention you could answer at least questions 5 and 6
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1. To calculate the firm's average collection period, we need to determine the weighted average number of days it takes for customers to pay.
The weighted average number of days is calculated by multiplying the percentage of customers in each payment category by the number of days they take to pay, and then summing these values.
In this case, we have:
- 30% of customers pay on the 10th day and take discounts (10 days)
- 40% of customers pay on the 30th day (30 days)
- 30% of customers pay, on average, 40 days after the purchase (40 days)
Using these percentages and payment terms, we can calculate the weighted average collection period as follows:
Average collection period = (30% x 10 days) + (40% x 30 days) + (30% x 40 days)
Average collection period = (0.30 x 10) + (0.40 x 30) + (0.30 x 40)
Average collection period = 3 + 12 + 12
Average collection period = 27 days
Therefore, the firm's average collection period is 27 days.
2. To calculate the firm's current receivables balance, we need to multiply the firm's annual sales by the percentage of sales that are yet to be collected.
Given that the collections department estimates that 30% of customers pay on the tenth day and take discounts, 40% pay on the thirtieth day, and the remaining 30% pay on average 40 days after the purchase, we can calculate the receivables balance as follows:
Receivables balance = (30% x 0.30 x $1,200,000) + (40% x 0.40 x $1,200,000) + (30% x 0.30 x $1,200,000)
Receivables balance = $108,000 + $192,000 + $108,000
Receivables balance = $408,000
Therefore, the firm's current receivables balance is $408,000.
3. If Milwaukee Surgical toughened up on its collection policy and implemented a scenario where all non-discount customers paid on the 30th day, the new receivables balance would change.
So, the new receivables balance would only include the 40% of customers who pay on the thirtieth day.
New receivables balance = 40% x $1,200,000
New receivables balance = $480,000
Therefore, the firm's new receivables balance would be $480,000.
4. To calculate the annual savings resulting from the toughened credit policy, we need to consider the cost to the firm to carry receivables, which is given as 8% per annum, and compare the current and new receivables balances.
Annual savings = (Current receivables balance - New receivables balance) x Cost to carry receivables
Annual savings = ($408,000 - $480,000) x 8%
Annual savings = -$72,000 x 8%
Annual savings = -$5,760
Therefore, the annual saving resulting from the toughened credit policy would be -$5,760, indicating a decrease in expenses.
5. Financial statement analysis involves analyzing a company's financial statements to assess its financial health, profitability, liquidity, and overall performance. It focuses on interpreting data from financial statements like the balance sheet, income statement, and cash flow statement.
Operating indicator analysis, on the other hand, focuses on operational metrics and key performance indicators (KPIs) specific to a particular industry or company. It involves analyzing non-financial data such as patient volume, average length of stay, occupancy rates, case mix, etc., to evaluate the operational efficiency and effectiveness of a healthcare organization.
Both types of analysis are useful to health services managers. Financial statement analysis helps managers assess the financial position of the organization, make strategic decisions, and identify areas for improvement. Operating indicator analysis provides insights into operational performance and helps managers monitor key metrics that impact quality of care, efficiency, and resource utilization.
By combining both types of analysis, managers can obtain a comprehensive understanding of the organization's financial and operational performance, enabling them to make informed decisions and take appropriate actions to improve overall performance.
6. The market multiple approach to business valuation is a method used to determine the value of a business by comparing it to similar businesses in the market. It involves using a multiple (e.g., price-to-earnings ratio, price-to-sales ratio) based on the market values of similar businesses to estimate the value of the business being valued.
The mechanics of the market multiple approach involve the following steps:
1. Identify a set of comparable companies in the same industry or sector.
2. Collect data on the market values (e.g., stock prices, market capitalizations) and relevant financial multiples (e.g., price-to-earnings ratio, price-to-sales ratio) of these comparable companies.
3. Calculate the average or median value of the financial multiples for the comparable companies.
4. Apply the average or median multiple to the corresponding financial metric of the business being valued (e.g., earnings, sales) to estimate its value.
5. Adjust the estimated value based on specific factors such as growth prospects, risk profile, and unique characteristics of the business.
6. Validate the estimated value by comparing it to other valuation methods or market transactions.
The market multiple approach provides a benchmark for valuing a business relative to the market, taking into account market sentiment, industry trends, and investor expectations. It is commonly used in mergers and acquisitions, initial public offerings, and investment analysis to determine a fair value for a business based on market comparables.