BUSI 320 Comprehensive Problem 1 Version SPRING
Use the following information to answer the questions below:
note: all sales are credit sales
Income Stmt info: 2019 2020
Sales 900,000$ 990,000$
less Cost of Goods Sold: 300,000 320,000
Gross Profit 600,000 670,000
Operating Expenses 500,000 505,000
Earnings before Interest & Taxes 100,000 165,000
Interest exp 25,000 25,000
earnings before Taxes 75,000 140,000
Taxes 30,000 45,000
Net Income 45,000$ 95,000$
Balance Sheet info: 12/31/2019 12/31/2020
Cash 60,000 65,000$
Accounts Receivable 100,000 120,000$
Inventory 80,000 130,000$
Total Current Assets 240,000$ 315,000$
Fixed Assets (Net) 300,000$ 330,000$
Total Assets 540,000$ 645,000$
Current Liabilities 130,000$ 140,000$
Long Term Liabilities 170,000$ 200,000$
Total Liabilities 300,000$ 340,000$
Stockholder's Equity 240,000$ 305,000$
Total Liab & Equity: 540,000$ 645,000$
Compute each of the following ratios for 2019 and 2020 and
indicate whether each ratio was getting "better" or "worse" from 2019 to 2020
and whether the 2020 ratio was "good" or "bad" compared to the Industry Avg
(round all numbers to 2 digits past the decimal place)
2019 2020
Getting
Better or
Getting
Worse?
2020
Industry
Avg
Profit Margin
0.05
0.10
Better
0.08
Current Ratio
1.85
2.25
Better
1.80
Quick Ratio
1.23
1.32
Better
1.12
Return on Assets
0.08
0.15
Better
0.18
Debt to Assets
0.56
0.53
Better
0.50
Receivables turnover
9.00
8.25
Worse
12.00
Avg. collection period*
40.00
43.64
Worse
22.10
Inventory Turnover**
11.25
7.62
Worse
8.25
Return on Equity
0.19
0.31
Better
0.16
Times Interest Earned
4.00
6.60
Better
6.15
*Assume a 360 day year
**Inventory Turnover can be computed 2 different ways. Use the formula listed in the text
(the one the text indicates many credit reporting agencies generally use)
"Good" or
"Bad"
compared
to
Industry
Avg
Notes
Good
Net income/ sales
Good
current assets/ current liabilities
Good
(Current assets-Inventory) / Current liabilities
Bad
Net income/ Total assets
Bad
Total debt/ total assets
Bad
credit sales/ receivables
Bad
accounts receivable/ average daily credit sales
Bad
sales revenue/ inventory
Good
net income/ stockholders' equity
Good
income before interest and taxes / Interest
Supplemental notes
2019 2020
average daily credit sales= credit sales/ 360, which = 2,500$ 2,750$
