Understanding Financial Ratios in a Case Study
Financial plans and statements are an important part of identifying how much money is needed, and of determining the health of the company through company valuation. Completing financial statements is part of the role of the entrepreneur in raising capital.
Reread “All Is Not Paradise in Eden’s Garden,” parts 1 and 2,( Attached below) in files found at the end of subsection LO 4 of this week’s chapter of your text.
Assume the role of Shelly Edison (the accountant) and calculate the following ratios. Using the financial statements for Eden’s Garden, calculate the following ratios:
- Current Ratio
- Quick Ratio
- Debt Ratio
- Times Interest Turnover Ratio
- Average Inventory Turnover
- Average Collection Period
- Average collection period in days
- Average Payable Period
- Average payable period in days
- Net Sales to Net Assets
- Net Sales to Working Capital
- Net Profit on Sales
- Net Profit on Equity
What recommendations can you make to Eden’s to improve their company’s financial performance in the future?
Your paper should be 3-5 pages in length and conform to the APA Style with in text citations. Calculations of the ratios should be shown in an appendix (Xcel spreadsheets would work as well) in APA format while the body of the paper is used for explanations and recommendations.
Text Box: Joe and Kaitlin Eden, co-owners of Eden's Garden, a small nurs- ery, lawn, and garden supply business, have just received their Balance Sheet, Eden's Garden Assets Current Assets Cash $6,457 Accounts Receivable $29,152 Less Allowance for $3,200 $25,952 Doubtful Accounts Inventory $88,157 Supplies $7,514 Prepaid Expenses $1,856 Total Current Assets $129,936 Fixed Assets Land $59,150 Buildings $51,027 Less Accumulated Depreciation $2,061 $48,966 Autos $24,671 Less Accumulated $12,300 $12,371 Depreciation Equipment $22,375 Less Accumulated Depreciation $1,250 $21,125 Furniture and Fixtures $10,295 Less Accumulated Depreciation $1,000 $9,295 Total Fixed Assets $150,907 Intangibles (Goodwill) $0 Total Assets $280,843 Liabilities Current Liabilities Accounts Payable $54,258 Notes Payable $20,150 Credit Line Payable $8,118 Accrued Wages/Salaries Payable $1,344 Accrued Interest Payable $1,785 Accrued Taxes Payable $1,967 Total Current Liabilities $87,622 Long-Term Liabilities Mortgage $72,846 Note Payable $47,000 Total Long-Term Liabilities $119,846 Owner's Equity Sam Lloyd, Capital $73,375 Total Liabilities and Owner's Equity $280,843
Text Box: Income Statement, Eden's Garden Net Sales Revenue* $689,247 Cost of Goods Sold Beginning Inventory, 1/1/xx $78,271 + Purchases $403,569 Goods available for Sale $481,840 - Ending Inventory, 12,31/xx $86,157 Cost of Goods Sold $395,683 Gross Profit $293,564 Operating Expenses Advertising $22,150 Insurance $9,187 Depreciation Building $26,705 Autos $7,895 Equipment $11,200 Salaries $116,541 Uniforms $4,018 Repairs and Maintenance $9,097 Travel $2,658 Entertainment $2,798 Total Operating Expenses $212,249 General Expenses Utilities $7,987 Telephone $2,753 Professional Fees $3,000 Postage $1,892 Payroll Taxes $11,589 Total General Expenses $27,221 Other Expenses Interest Expense $21,978 Bad check Expense $679 Miscellaneous expense $1,248 Total Other Expenses $23,905 Total Expenses $263,375 Net Income $30,189 *Credit sales represented $289,484 of this total. year-end financial statements from their accountant. At their last meeting with their accountant, Shelley Edison, three months ago, the Edens had mentioned that they seemed to be having trouble paying their bills on time. "Some of our suppliers have threatened to put us on 'credit hold,- said Joe.
428 SECTION III • LAUNCHING THE BUSINESS
-4/al You Be the Consviltanit
All Is Not Paradise in Eden's Garden: Part 1
Joe and Kaitlin Eden, co-owners of Eden's Garden, a small nurs-
ery, lawn, and garden supply business, have just received their Balance Sheet, Eden's Garden Assets Current Assets |
Cash | | $6,457 |
Accounts Receivable | $29,152 | |
Less Allowance for | $3,200 | $25,952 |
Doubtful Accounts | | |
Inventory | | $88,157 |
Supplies | | $7,514 |
Prepaid Expenses | | $1,856 |
Total Current Assets | | $129,936 |
Fixed Assets | | |
Land | | $59,150 |
Buildings | $51,027 | |
Less Accumulated Depreciation | $2,061 | $48,966 |
Autos | $24,671 | |
Less Accumulated | $12,300 | $12,371 |
Depreciation | | |
Equipment | $22,375 | |
Less Accumulated Depreciation | $1,250 | $21,125 |
Furniture and Fixtures | $10,295 | |
Less Accumulated Depreciation | $1,000 | $9,295 |
Total Fixed Assets | | $150,907 |
Intangibles (Goodwill) | | $0 |
Total Assets | | $280,843 |
Liabilities | | |
Current Liabilities | | |
Accounts Payable | | $54,258 |
Notes Payable | | $20,150 |
Credit Line Payable | | $8,118 |
Accrued Wages/Salaries Payable | | $1,344 |
Accrued Interest Payable | | $1,785 |
Accrued Taxes Payable | | $1,967 |
Total Current Liabilities | | $87,622 |
Long-Term Liabilities | | |
Mortgage | | $72,846 |
Note Payable | | $47,000 |
Total Long-Term Liabilities | | $119,846 |
Owner's Equity | | |
Sam Lloyd, Capital | | $73,375 |
Total Liabilities and Owner's
Income Statement, Eden's Garden Net Sales Revenue* | | $689,247 | Cost of Goods Sold | | | Beginning Inventory, 1/1/xx | $78,271 | | + Purchases | $403,569 | | Goods available for Sale | $481,840 | | - Ending Inventory, 12,31/xx | $86,157 | | Cost of Goods Sold | | $395,683 | Gross Profit | | $293,564 | Operating Expenses | | | Advertising | $22,150 | | Insurance | $9,187 | | Depreciation | | | Building | $26,705 | | Autos | $7,895 | | Equipment | $11,200 | | Salaries | $116,541 | | Uniforms | $4,018 | | Repairs and Maintenance | $9,097 | | Travel | $2,658 | | Entertainment | $2,798 | | Total Operating Expenses | | $212,249 | General Expenses | | | Utilities | $7,987 | | Telephone | $2,753 | | Professional Fees | $3,000 | | Postage | $1,892 | | Payroll Taxes | $11,589 | | Total General Expenses | | $27,221 | Other Expenses | | | Interest Expense | $21,978 | | Bad check Expense | $679 | | Miscellaneous expense | $1,248 | | Total Other Expenses | | $23,905 | Total Expenses | | $263,375 | Net Income | | $30,189 |
*Credit sales represented $289,484 of this total. year-end financial statements from their accountant. At their last meeting with their accountant, Shelley Edison, three months ago, the Edens had mentioned that they seemed to be having trouble paying their bills on time. "Some of our suppliers have threatened to put us on 'credit hold,- said Joe. |
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