Chapter 11 Accounting contd

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Chapter 11Accounting contd
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Plan for today

• financial ratios
• statement of cash flows
• TQM

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Ratios Current Ratio

• Current Assets / Current Liabilities
• What is Sobeys current ratio?
• Interpreting current ratios
• For every dollar owed in the short-term, the firm
  has __ of assets that it can convert into cash
  quickly
• Indication of whether firm is in short-run danger
• Textbook says 21 or higher is good
• Tough question Does Sobeys low current ratio
  imply that Sobeys is in any danger? Why or why
  not?

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Financial Measures Working Capital

• Current Assets Current Liabilities
• What is Sobeys working capital?
• Interpretation
• Net current assets

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Ratios Debt-Equity Ratio

• Compute Sobeys debt-equity ratio
• DE ratio measures
• leverage
• long-term riskiness
• Textbook says more than 1 problematic
• Does this imply that Sobeys is unhealthy?

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Ratios ROE and EPS

• Return on Equity
• Compute Sobeys ROE.
• important to shareholders, but may be distorted
  by the fact that owners equity does not reflect
  true value
• Earnings per Share
• provided in financial statements of publicly
  traded companies

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Ratios Inventory turnover

• Sobeys cant compute it
• Why doesnt Sobeys separate out cost of goods
  sold from selling and administrative costs?
• What is the inventory turnover if COGS is 9,500
  million?
• Interpretation
• How long does a product stay in Sobeys inventory
  (on average)?
• Suppose inventory turnover slows. Why might an
  investor get concerned?

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Statement of Cash Flow

• What are key elements in working capital?
• Current assets Accounts receivable, inventory
• Current liabilities Accounts payable

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Statement of Cash Flow

• d

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Statement of Cash Flow

• a

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Total quality management (TQM)

• W. Edwards Deming
• First 7 of his 14 points
• Create constancy of purpose.
• Take the lead in adopting the new philosophy.
• Cease dependence on inspection to achieve
  quality.
• End the practice of awarding business on the
  basis of cheapest costs.
• Improve constantly.
• Institute modern on the job training.
• Institute supervision to develop inspired
  leaders. Create constancy of purpose.

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Total quality management (TQM)

• Last 7 of his 14 points
• Drive out fear and instill learning.
• Break down barriers between departments.
• Eliminate slogans, exhortations, and targets.
• Eliminate management by numbers, and management
  by objective. Substitute leadership.
• Remove barriers to pride in workmanship.
• Institute education and self-improvement.
• Put everybody to work to accomplish the
  transformation.

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