Calculate and Interpret the following financial ratios Current Ratio Quick Ratio Inventory Turn Over Ratio Days...

 

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Calculate and Interpret the following financial ratios Current Ratio Quick Ratio Inventory Turn Over Ratio Days Sales Outstanding (DSO) Fixed Assets Turn Over Ratio Total Assets Turn Over Ratio Debt to Capital Ratio Times Interest Earned OM PM ROA ROE Balance Sheet: Liabilities and Equity 2020E 2019 Accts payable 436,800 524,160 Accruals 408,000 489,600 Notes payable 300,000 636,808 Total CL 1,144,800 1,650,568 Long-term debt 400,000 723,432 Common stock 1,718,986 460,000 Retained earnings 233,366 32,592 Total Equity 1,952,352 492,592 Total L & E 3,497,152 2,866,592 Industry Ratios . Current Ratio 2.70x Quick Ratio 1.00x Inventory Turn Over Ratio 6.10x DSO 32 days FATO 7x . TATO 2.60x . Debt to Capital 40% TIE 6.20x OM 7.3% . PM 4.3% ROA 11.2% ROE 18.2% PM Net income/sales 2019= (-160,176)/6,126,796=-.026 2020-255,774/6,900,600=.037 ROA Net income/total assets 2019-(-160,176)/2,866,592=-.0559 2020-255,774/3,497,152=.0731 ROE Net income/total common equity 2019-(-160,176)/492,592= -.325 2020-255,774/1,952,352=.131 2019-632,160/(6,126,796/365)=37.63 2020-878,000/(6,900,600/365)=46.44 Fixed Assets Turnover Ratio sales/net fixed assets 2019-6,126,796/939,790=6.52 2020 6,900,600/817,040-8.45 Total Assets Turnover Ratio sales/total assets 2019-6,126,796/2,866,592=2.14 2020 6,900,600/3,497,152=1.97 Debt to Capital Ratio Total debt/total invest capital Total debt= notes payable+long term debt 2019 (636,808+723,432)/(1,360,240+492,592)=.73 2020 (300,000+400,000)/(700,000+1,952,352)=.26 Analysis: The company had a high debt to capital ratio of 73% in 2019 in comparison To the industry standard of 40%. In 2020, the company managed to slash notes Payable and long term debt in half by issuing more common stock, resulting in a 26% debt to capital ratio, well below the industry average Times Interest Earned EBIT/Interest 2019 (-38,152)/122,024=-.31 2020=357,648/70,008=5.11 OM EBIT/sales 2019 (-38,152)/6,126,796=.006 2020=357,648/6,900,600=.052 Income Statement 2020E 6,900,600 2019 Sales 5,875,992 6,126,796 COGS 550,000 5,528,000 Other expenses 474,608 519,988 EBITDA 116,960 78,808 357,648 116,960 Deprec. & amort. 70,008 ( 38,152) EBIT 287,640 122,024 Interest exp. 31,866 (160,176) EBT 255,774 0 Taxes (160,176) Net income Balance Sheet: Assets 2020E 2019 Cash 85,632 7,282 A/R 878,000 632,160 Inventories 1,716,480 1,287,360 Total CA 2,680,112 1,926,802 Gross FA 1,197,160 1,202,950 Less: Deprec. 380,120 263,160 Net FA 817,040 939,790 Total Assets 3,497,152 2,866,592 Snack food company that underwent major expansion in 2018. It opened sales offices in other territories and launched an expensive advertising campaign to compete with major snack food companies such as Frito-Lay. So far, expansion results have been unsatisfactory. Company's cash position is weak. Suppliers are being paid late. Bank has threatened to cut off credit. Board of Directors has ordered that changes must be made! Current Ratio Current assets/current liabilities 2019 1,926,802/1,650,568= 1.17 2020 2,680,112/1,144,800= 2.34 Analysis: The company had a 1.17x current ratio in 2019, in comparison to the industry standard of 2.7x. This shows that the companies ability to pay off short term debt was weak in comparison to the industry. In 2020, the company improved their current ratio to 2.34x. This demonstrates that they have the ability to pay off short term debt if necessary, but they are still behind the industry standard. Quick Ratio (current assets -inventories)/current liabilities 2019= (1,926,802-1,287,360)/1,650,568= .387 2020=(2,680,112-1,716,480)/1,144,800=.84 Analysis: The company had a quick ratio of .387 in 2019, in comparison to the industr standard of 1.00. This shows that the company cannot pay off its short term obligations with cash or assets readily converted into cash. In 2020, they improved to .837, but still fall short of the industry standard of 1.00. Inventory Turnover Ratio sales/inventories 2019 6,126,796/1,287,360=4.76 2020 6,900,600/1,716,480=4.0 Days Sales Outstanding (DSO) (receivables/(annual sales/365) Other Data 2020E 2019 No. of shares 250,000 100,000 EPS $1.023 -$1.602 DPS $0.220 $0.110 Stock price $12.17 $2.25 Lease pmts $40,000 $40,000 Calculate and Interpret the following financial ratios Current Ratio Quick Ratio Inventory Turn Over Ratio Days Sales Outstanding (DSO) Fixed Assets Turn Over Ratio Total Assets Turn Over Ratio Debt to Capital Ratio Times Interest Earned OM PM ROA ROE Balance Sheet: Liabilities and Equity 2020E 2019 Accts payable 436,800 524,160 Accruals 408,000 489,600 Notes payable 300,000 636,808 Total CL 1,144,800 1,650,568 Long-term debt 400,000 723,432 Common stock 1,718,986 460,000 Retained earnings 233,366 32,592 Total Equity 1,952,352 492,592 Total L & E 3,497,152 2,866,592 Industry Ratios . Current Ratio 2.70x Quick Ratio 1.00x Inventory Turn Over Ratio 6.10x DSO 32 days FATO 7x . TATO 2.60x . Debt to Capital 40% TIE 6.20x OM 7.3% . PM 4.3% ROA 11.2% ROE 18.2% PM Net income/sales 2019= (-160,176)/6,126,796=-.026 2020-255,774/6,900,600=.037 ROA Net income/total assets 2019-(-160,176)/2,866,592=-.0559 2020-255,774/3,497,152=.0731 ROE Net income/total common equity 2019-(-160,176)/492,592= -.325 2020-255,774/1,952,352=.131 2019-632,160/(6,126,796/365)=37.63 2020-878,000/(6,900,600/365)=46.44 Fixed Assets Turnover Ratio sales/net fixed assets 2019-6,126,796/939,790=6.52 2020 6,900,600/817,040-8.45 Total Assets Turnover Ratio sales/total assets 2019-6,126,796/2,866,592=2.14 2020 6,900,600/3,497,152=1.97 Debt to Capital Ratio Total debt/total invest capital Total debt= notes payable+long term debt 2019 (636,808+723,432)/(1,360,240+492,592)=.73 2020 (300,000+400,000)/(700,000+1,952,352)=.26 Analysis: The company had a high debt to capital ratio of 73% in 2019 in comparison To the industry standard of 40%. In 2020, the company managed to slash notes Payable and long term debt in half by issuing more common stock, resulting in a 26% debt to capital ratio, well below the industry average Times Interest Earned EBIT/Interest 2019 (-38,152)/122,024=-.31 2020=357,648/70,008=5.11 OM EBIT/sales 2019 (-38,152)/6,126,796=.006 2020=357,648/6,900,600=.052 Income Statement 2020E 6,900,600 2019 Sales 5,875,992 6,126,796 COGS 550,000 5,528,000 Other expenses 474,608 519,988 EBITDA 116,960 78,808 357,648 116,960 Deprec. & amort. 70,008 ( 38,152) EBIT 287,640 122,024 Interest exp. 31,866 (160,176) EBT 255,774 0 Taxes (160,176) Net income Balance Sheet: Assets 2020E 2019 Cash 85,632 7,282 A/R 878,000 632,160 Inventories 1,716,480 1,287,360 Total CA 2,680,112 1,926,802 Gross FA 1,197,160 1,202,950 Less: Deprec. 380,120 263,160 Net FA 817,040 939,790 Total Assets 3,497,152 2,866,592 Snack food company that underwent major expansion in 2018. It opened sales offices in other territories and launched an expensive advertising campaign to compete with major snack food companies such as Frito-Lay. So far, expansion results have been unsatisfactory. Company's cash position is weak. Suppliers are being paid late. Bank has threatened to cut off credit. Board of Directors has ordered that changes must be made! Current Ratio Current assets/current liabilities 2019 1,926,802/1,650,568= 1.17 2020 2,680,112/1,144,800= 2.34 Analysis: The company had a 1.17x current ratio in 2019, in comparison to the industry standard of 2.7x. This shows that the companies ability to pay off short term debt was weak in comparison to the industry. In 2020, the company improved their current ratio to 2.34x. This demonstrates that they have the ability to pay off short term debt if necessary, but they are still behind the industry standard. Quick Ratio (current assets -inventories)/current liabilities 2019= (1,926,802-1,287,360)/1,650,568= .387 2020=(2,680,112-1,716,480)/1,144,800=.84 Analysis: The company had a quick ratio of .387 in 2019, in comparison to the industr standard of 1.00. This shows that the company cannot pay off its short term obligations with cash or assets readily converted into cash. In 2020, they improved to .837, but still fall short of the industry standard of 1.00. Inventory Turnover Ratio sales/inventories 2019 6,126,796/1,287,360=4.76 2020 6,900,600/1,716,480=4.0 Days Sales Outstanding (DSO) (receivables/(annual sales/365) Other Data 2020E 2019 No. of shares 250,000 100,000 EPS $1.023 -$1.602 DPS $0.220 $0.110 Stock price $12.17 $2.25 Lease pmts $40,000 $40,000