Homework SourseBenchmark ananlysistrademark corp financial manager collecte
Benchmark ananlysis;trademark corp financial manager collected the following information for its peer group to compare its performance against that of its peer.
Ratios Trademark Peer Group
DSO 33.5 days 27.9 days
Total assest turnover 2.3 3.7
Inventory turnover 1.8 2.8
Quick Ratio 0.6 1.3
A.explain how trademark is performing relative to its peer.
b. how do the industry ratios help trademark management.
Solution
Answer to this question
Trademark Corp.’s financial manager collected the following information for its peer group so that it can compare its own performance against that of the peers.
Ratios Trademark Peer Group
DSO 33.5 days 27.9 days
Total assets turnover 2.3 3.7
Inventory turnover 1.8 2.8
Quick ratio 0.6 1.3
a. Explain how Trademark is doing relative to its peers.
b. How do the industry ratios help Trademark’s management?
Solution:
a. One can see that Trademark is not doing as well as its competitors. The turnover ratio indicates that the firm either needs to increase its sales relative to its level of assets or reduce its assets relative to its level of sales. In addition, the lower quick ratio indicates a lower lever of liquidity, perhaps because of too much inventory. A reduction in the inventory would help Trademark improve its performance to a level that is comparable to its peer group.
b. Average industry ratios serve as benchmarks for the firm’s management to measure its own performance. While no two firms are identical in any industry, the average ratios across the industry are good target ratios for a firm.
