Superior Kitchens and Bathrooms Ltd. is a small business that sells kitchen and bathroom fixtures and accessories and also does design and installation. The business was started three years ago by Qing Liu. Initially the company’s operations consisted of kitchen and bathroom renovations for individual homes. In 2023, the company started providing design and installation services to local contractors to expand sales. As the contractor side of the business grew in 2024, the company purchased a truck for deliveries. All sales to individuals are cash on delivery, but for contracting jobs, customers are invoiced and are offered 30-day payment terms. The company’s suppliers offer terms of 30 days. Selected financial information for Superior Kitchens and Bathrooms Ltd. follows.

Required 

a. Assume the growth in sales in 2024 is primarily from the contracting business. Calculate the gross margins and the profit margins and comment on whether you think the company should be focusing on the contracting business or the home market. 

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 2024? What items on the statement of financial position support your position? 

c. Calculate the company’s accounts receivable turnover ratio for 2024. 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 contracting business and recalculate the accounts receivable turnover for 2024. How does that affect your assessment of how receivables are being managed? 

e. Calculate the company’s inventory turnover ratio for 2024. Comment on the result. 

f. Calculate the company’s accounts payable turnover ratio for 2024. 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 Qing outlining why it may be useful to break out the company’s financial results by segment (home market and contracting).

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Assets Cash Accounts receivable Inventory Land Building and equipment Total assets Liabilities and equity Accounts payable Short-term note payable Mortgage payable, current Mortgage payable Share capital Retained earnings Total liabilities and equity Other information Sales Cost of goods sold Net income 2024 $ 12,040 19,700 15,260 21,000 62,000 $130,000 $ 13,300 2,520 3,500 31,500 16,800 62,380 $130,000 $262,000 110,000 28,000 2023 $ 4,480 13,000 8,400 21,000 53,580 $100,460 $ 11,200 0 3,500 35,000 16,380 34,380 $100,460 $220,000 103,000 9,700