2A2Z MARGE HALIFAX, CHIEF FINANCIAL OFFICER OF STRICKLAND CONSTRUCTIO...

51.

CSO: 2A2b

LOS: 2A2z

Marge Halifax, chief financial officer of Strickland Construction, has been tracking the

activities of the company’s nearest competitor for several years. Among other trends,

Halifax has noticed that this competitor is able to take advantage of new technology and

bring new products to market more quickly than Strickland. In order to determine the

reason for this, Halifax has been reviewing the following data regarding the two

companies.

Strickland

Competitor

Accounts receivable turnover

6.85

7.35

Return on assets

15.34

14.74

Times interest earned

15.65

12.45

Current ratio

2.11

1.23

Debt/equity ratio

42.16

55.83

Degree of financial leverage

1.06

1.81

Price/earnings ratio

26.56

26.15

On the basis of this information, which one of the following is the best initial strategy for

Halifax to follow in attempting to improve the flexibility of Strickland?

a.

Seek cost cutting measures that would increase Strickland’s profitability.

b.

Investigate ways to improve asset efficiency and turnover times to improve

liquidity.

c.

Seek additional sources of outside financing for new product introductions.

d.

Increase Strickland’s investment in short-term securities to increase the current

ratio.