North Branch and the South Branch Case

In: Business and Management

Submitted By yrrahjim
Words 931
Pages 4
Case Background

This case is concerned about the North Branch and the South Branch’s comparison when it comes to profitability, short-term and long-term liquidity. * Cash flow provided * North Branch 600,000 * South Branch 550,000 * Assumptions * The balances in asset and equity accounts at year-end approximate the average balances during the period. * Income tax rate was 30% Simplified and Condensed Income Statements

Tasks

Using appropriate financial ratios, explain which branch is: * A. More Profitable * B. Less risky in terms of short-term liquidity? * C. Less risky in terms of long-term liquidity? Answers:

A. More Profitable Profitability financial Ratios

Return Ratios | Formula | North | South | Return on Equity | Net IncomeTotal Equity | 6424,000= .16 0.16:1 | 4923,500= .14 0.14:1 | Return on Assets | Net IncomeTotal Assets | 6426,000=.11 0.11:1 | 4926,000=.08 0.08:1 |

Margin Ratios | | | | Gross Profit Margin | Gross ProfitTotal Sales | 1,5004,300= .35 or 35% | 1,6003,000= .53 or 53% | Cash Return on Asset | CF from Operating ActivitiesTotal Assets | 6006,000=.10 0 .10:1 | 5506,000=.09 0.90:1 | Net Profit Margin | Net ProfitTotal Sales | 6424,300= .15 or 15% | 4923,000= .16 or 16% | Cash Flow Margin | CF from Operating Cash FlowsTotal Sales | 6004,300= .14 or 14% | 5503,000= .18 or 18% | Operating Profit Margin | EBITTotal Sales | 1,0174,300= .24 or 24% | 9033,000= .30 or 30% |

Answer:

As a shareholder, North Branch is better. South Branch has to improve its ability to generate shareholders wealth. Moreover, for South branch, they were able…...

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