Avantronics Is a Manufacturer of Electronic Components and Accessories with Total

question 73

Essay

Avantronics is a manufacturer of electronic components and accessories with total assets of $20,000,000. Selected financial ratios for Avantronics and the industry averages for firms of similar size are presented below.
Avantronics is being reviewed by several entities whose interests vary, and the company's financial ratios are a part of the data being considered. Each of the parties listed below must recommend an action based on its evaluation of Avantronics' financial position.
• Mid Coastal Bank. The bank is processing Avantronic's application for the new five-year term note. MidCoastal has been Avantronics' banker for several years, but must re-evaluate the company's financial position for each major transaction.
• Ozawa Company. Ozawa is a new supplier to Avantronics, and must decide on the appropriate credit terms to extend to the company.
• Drucker & Denon. A brokerage firm specializing in the stock of electronics firms that are sold over-the-counter, Drucker & Denon must decide if it will include Avantronics in a new fund being established for sale to Drucker & Denon's clients.
• Working Capital Management Committee. This is a committee of Avantronics' management personnel chaired by the chief operating officer. The committee is charged with the responsibility of periodically reviewing the company's working capital position, comparing actual data against budgets, and recommending changes in strategy as needed.
Required:
(1) Describe the analytical use of each of the four ratios presented above.
(2) For each of the four entities described above, identify one or two financial ratios, from those ratios presented, that would be most valuable as a basis for its decision regarding Avantronics.
(3) Discuss what the financial ratios presented in the question reveal about Avantronics. Support your answer by citing specific ratio levels and trends as well as the interrelationships between these ratios.

---

Definitions:

Cognitive Consistency Theories

Theories in psychology that suggest individuals are motivated to maintain consistency among their cognitions (beliefs, attitudes, and perceptions).

Inconsistencies

Situations or statements that are not in agreement, lack compatibility, or are full of contradictions.

Individuals

Distinct or separate entities, often referred to in the context of singular human beings.

Cognitive Dissonance

The psychological discomfort experienced by an individual who holds two or more contradictory beliefs, ideas, or values at the same time.