Question

Choice Hotels 30, Ratios 20186 Dec. 31,2017 Formulas Current ratio current ratio current assets/current iabilities working capital current assets-current Eabilities Working capital NoteUse the ratios in your answers, and explain what the ratios mean. 1. Based on your calculations of current ratio and total-asset turnover ratio, what would you recommend we do to improve our asset management? 2. We would like to improve the use of our working capital. Based on your ratio calculations. What are your specific recommendations? Please note that the current liability for deferred revenue consists primarily of amounts ow ed to customers in Loyalty programs This will limit what can be done to increase working capital. See below: Deferred Revenue Deferred revense coesists of the folowing Deoamber 31, On thousanda) Loya hy programs 127,921 115,831 Initial relicensing and franchise fees 8,905 9,352 Procurement services fees 3,939 Other 346 Total 141,111 133218

Answer 1

a) Fixed Assests Turnover is increasing meaning you are using your assets better than previous period. The assets have generated higher revenue per unit of fixed assets than previous period.

b) Total asset turnover is decreasing meaning you have accumulated large amount of non-fixed assets ; the proportion of contribution of revenue per unit of current assets has gone down

c) Accounts receivable to working capital is decreasing . Here assuming Working capital is negative i.e. Current Liabilities > Current Assets, then we can say that Account Recievables have considerably increased. This expalins the reduction of Total assets turnover as Accounts Recievables is a part of current assets which are increasing.

d) LT liabilities for the firm is increasing . The company is using more debt financing .

e) Sales are increasing but assets are increasing at higher rate