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MU ACC 221 - Red Company: Chapter 4
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ACC 221 1st Edition Lecture 37Outline of Previous Lecture- Section 36: Red Company: Chapter 3 Chapter 3o Dupont AnalysisOutline of Current Lecture - Section 37: Red Company: Chapter 4 Chapter 4o Profitabilityo Cost of goods soldo Efficiencyo Leverage o Interest CoverageCurrent Lecture- Section 37: Red Company: Chapter 4 Chapter 4o Profitability Gross Profit Margin %- How many cents of each $1 of net sales are left after deducting cost of goods sold- Gross profit / net sales (100) = GPM%- Better if higher Operating Profit Margin %- How many cents of each $1 of net sales are left after deducting operating expenses from gross profits- Operating income / net sales = OPM%- Better if higher Net Profit Margin %- Net income / net sales = NPM%- Better if highero Cost of goods sold Decrease, favorable impact- Purchase products more effectively- Produce efficientlyThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- Market more effectively, increase priceso Efficiency  Accounts receivable turnover ratio- Net sales / average accounts receivable, net (times)- Better if higher Number of days’ sales in receivables- 365/ accounts receivable turnover ratio (days)- Better if lower Inventory turnover ratio- Cost of goods sold / average inventory (times)- Better if higher Number of days’ sales in inventory- 365 / inventory turnover ratio (days)- Better if lower Accounts payable turnover ratio- Cost of goods sold / Average accounts payable (times)- Better if lower Number of days’ purchases in accounts payable- 365 / accounts payable turnover ratio (days)- Better if higher Cash to cash cycle- Days’ sales in inventory – days’ purchases in accounts payable + number days sales in receivables- Better if lower Fixed asset turnover ratio- Net sales / average net fixed assets- Better if highero Leverage Debt % - Total liabilities / total assets - May be better higher or lower Debt-to-Equity ratio- Total liabilities / total stockholders’ equity- May be better higher or lowero Interest coverage Times interest earned ratio- Net income + interest expense + provision for income taxes- Better if


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MU ACC 221 - Red Company: Chapter 4

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