Cathy’s Cuisine Ltd. is a small restaurant and catering business started three years ago by Cathy Crosby. Initially, the company’s operations consisted of a small diner. In 2019, the company added the catering services as a way to expand sales without having to add space for seats. As the catering side of the business grew in 2020, the company purchased a used vehicle for deliveries. All sales in the diner are cash, debit, or credit card, but for catering jobs, customers are invoiced after the event. Most of the company’s suppliers offer terms of 30 days. Selected financial information for Cathy’s Cuisine Ltd. follows.

		2020		2019
Assets
Cash		$8,960		$3,370
Accounts receivable		15,100		10,230
Inventory		10,610		6,370
Land		14,840		14,840
Building and equipment		28,630		25,800
Total assets		$78,140		$60,610
Liabilities and equity
Accounts payable		$10,000		$7,200
Short-term note payable		1,800		0
Mortgage payable current		2,490		2,490
Mortgage payable		22,4 10		24,900
Share capital		14,000		14,000
Retained earnings		27,440		12,020
Total liabilities and e.quity		$78,140		$60,610
Other information
Sales		$196,810		$144,480
Cost of goods sold		82,730		78,430
Net income		15,420		5,780

a. Assume the growth in sales in 2020 is primarily from the catering business. Calculate the gross margins and the profit margins of 2020 and 2019 also comment on whether you think the company should be focusing on the catering business or the diner.

b. Calculate the company’s current ratio and quick ratio for both years and comment on the company’s liquidity. Do you think the company is more liquid or less in 2020? What items on the statement of financial position support your position?

c. Calculate the company’s accounts receivable turnover ratio for 2020. How quickly is the company collecting its receivables? Do you think it is doing a good job of managing its receivables?

d. Assume that 50% of the sales come from the catering business and recalculate the accounts receivable turnover for 2020. How does that affect your assessment of how receivables are being managed?

e. Calculate the company’s inventory turnover ratio for 2020.

f. Calculate the company’s accounts payable turnover ratio for 2020. Are suppliers being paid on time?

g. Using your analysis of the company’s receivables and payables, what would you recommend be done to improve the management of those accounts?

h. Prepare a brief memo to Cathy outlining why it may be useful to break out the company’s financial results by segment (diner and catering)

Answer rating: 100% (QA)

a 2020 2019 Sales 196810 144480 853225 170645 Cost of sales 82730 78430 12665 12665 Gross Income 114... View the full answer