1. The December 31, 1984, balance sheet and income statement for Mayberry Cafeterias, Inc.

are given a. Compute the specified ratios, and compare them to the industry average (better or worse). b. If you were appointed financial manager of the company, what decisions would you make based on your findings?

Balance Sheet
Cash Marketable Securities Accounts Receivable Inventory Prepaid Expenses Current Assets Gross plant and equipment Less: Accumulated Dep. Net Plant and Equipment $ 17 5 3 16 6 $ 47 Accounts Payable Notes Payable Taxes Payable Other Accruals Current Liabilities $7 3 2 3 $ 15 $ 35 10 20 10 26 $ 116

Long-term debt $ 126 Preferred Stock (57) Common Stock 69 Capital contributed in excess of par Retained Earnings $ 116 Total Liabilities and Stockholders equity

Total Assets

Income Statement Net Sales Cost of Goods sold Gross Profit Selling Expense General and Administrative expense Depreciation Net Income Interest Expense Profit Before taxes Taxes Net Income

$ 1,072 921 152 86 26 6 $ 33 4 $ 29 12 $ 17

Assignment II

Page 1

Ratios to Compute Current Quick Debt-Equity Times interest period Average Collection period Inventory Turnover Fixed-asset turnover Operating profit margin Net profit margin Book return on assets Book return on equity

1984 Mayberry

Better or Worse

1984 Industry Average (%) 2.86 2.31 0.51 12.36 1.06 95.71 16.15 0.036 0.019 0.192 0.271

Answer:
1 (a) .

Current Ratio

= = =

Current Assets / Current Liability 47/15 3.133

Quick Ratio

= = =

Current Assets Inventories / Current Liabilities 47 16 / 15 2.066

Assignment II

Page 2

Debt Equity

= = =

Total Debt / Shareholders Equity 35 / 101 0.3465

Times Interest period = = =

EBIT / Interest payable 29 / 4 7.25

Average Collection Period

= = =

Days * Accounts Receivable / Credit Sales 360 * 3 / 1072 1.007

Inventory Turnover

= = =

Sales / Inventory 1072 / 16 67

Fixed Asset Turnover

= = =

Sales / Fixed Asset 1072 / 69 15.53

Operating Profit Margin

= = =

Gross Profit / Sales 152 / 1072 0.141

Assignment II

Page 3

Net Profit Margin

= = =

Net Income / Sales 17 / 1072 0.0158

Book Return On Assets

= = =

Net Income / Total Assets 17 / 116 0.146

Book Return On Equity

= = =

Net Income / Shareholders Equity 17 / 101 0.168

Ratios to Compute Current Quick Debt-Equity Times interest period Average Collection period Inventory Turnover Fixed-asset turnover Operating profit margin Net profit margin Book return on assets Book return on equity

1984 Mayberry 3.133 2.066 0.3465 7.25 1.007

Better or Worse Worse (Too High) Worse Worse Worse Worse

1984 Industry Average (%) 2.86 2.31 0.51 12.36 1.06

67 15.53 0.141 0.0158 0.146 0.168

Worse Worse Better Worse Worse Worse

95.71 16.15 0.036 0.019 0.192 0.271

Assignment II

Page 4

Answer 1 (b).

Assignment II

Page 5

2. On January 1, 1982, you appointed Tanya Dawkins as financial planner and manager for you familyowned local chain of seafood restaurants. Using the companys balance sheets for the last three years, evaluate her performance in each of the following areas: improving the firms short-term solvency, asset utilization, and profitability.

Balance Sheet
Cash Marketable Securities Accounts Receivable Inventory Current Assets Gross plant and equipment Less accumulated depreciation Net Plant and equipment Total Assets Accounts Payable Wages Payable Notes Payable Total current liabilities Long-term debt Common stock Additional paid-in capital Retained earnings Total Liabilities and stockholders equity Dec 31, 1982 (Thousands) $27 16 21 13 $77 $192 (61) 131 208 $29 3 52 $84 60 20 20 24 208 Dec 31, 1982 (Thousands) $28 18 18 17 $81 $198 (66) 132 213 $26 3 56 $85 60 20 20 28 213 Dec 31, 1982 (Thousands) $32 13 13 18 $76 $219 (74) 145 221 $20 4 60 $84 60 20 20 37 221

Assignment II

Page 6

Income Statement
Sales Cost of goods sold Gross profit Selling expense General and admin exp Depreciation Net operating income Interest Taxable income Taxes Net Income Dec 31, 1982 (Thousands) $912 827 $85 37 27 4 $17 12 $5 2 3 Dec 31, 1982 (Thousands) $921 833 $88 41 24 5 $18 11 $7 3 4 Dec 31, 1982 (Thousands) $942 851 $91 46 10 7 $28 10 $18 7 11

Ratios Current Ratio Quick Ratio Debt-Equity Times interest earned Avg Collection Period Inventory turnover Fixed-asset turnover Operating profit margin Net profit margin Book return on assets Book return on Equity

1982

1983

1984

1984 Industry Average (%) 1.36 1.21 1.03 4.51 4.96 117.8 7.61 0.036 0.012 0.098 0.113

Assignment II

Page 7

Answer:
2 (a) . Current Ratio = Current Assets / Current Liability 1982 77 / 84 0.9166 1983 81 / 85 0.952 1984 76 / 84 0.904

Quick Ratio

Current Assets Inventories / Current Liabilities 1982 77 13 / 84 0.7619 1983 81 17 / 85 0.7529 1984 76 18 / 84 0.6904

Debt Equity

Total Debt / Shareholders Equity 1982 60 / 124 0.483 1983 60 / 128 0.468 1984 60 / 137 0.437

Times Interest period =

EBIT / Interest payable 1982 17 / 12 1.416 1983 18 / 11 1.636 1984 28 / 10 2.8

Assignment II

Page 8

Average Collection Period

Days * Accounts Receivable / Credit Sales

1982 360 * 21 / 912 8.289

1983 360 * 18 / 921 7.035

1984 360 * 13 / 942 4.968

Inventory Turnover

Sales / Inventory 1982 912 / 13 70.153 1983 921 / 17 54.176 1984 942 / 18 52.333

Fixed Asset Turnover

Sales / Fixed Asset 1982 912 / 131 6.961 1983 921 / 132 6.972 1984 942 / 145 6.496

Operating Profit Margin

Gross Profit / Sales

1982 17 / 912 0.0186

1983 18 / 921 0.0195

1984 28 / 942 0.0297

Net Profit Margin

Net Income / Sales 1982 3 / 912 0.00328 1983 4 / 921 0.00434 1984 11 / 942 0.0116 Page 9

Assignment II

Book Return On Assets

Net Income / Total Assets

1982 3 / 208 0.0144

1983 4 / 213 0.0187

1984 11 / 221 0.0497

Book Return On Equity

Net Income / Shareholders Equity

1982 3 / 124 0.0242

1983 4 / 128 0.03125

1984 11 / 137 0.0803

Ratios Current Ratio Quick Ratio Debt-Equity Times interest earned Avg Collection Period Inventory turnover Fixed-asset turnover Operating profit margin Net profit margin Book return on assets Book return on Equity

1982 0.9166 0.7619 0.483 1.416 8.289 70.153 6.961 0.0186

1983 0.952 0.7529 0.468 1.636 7.035 54.176 6.972 0.0195

1984 0.904 0.6904 0.437 2.8 4.968 52.333 6.496 0.0297

1984 Industry Average (%) 1.36 1.21 1.03 4.51 4.96 117.8 7.61 0.036

0.00328 0.0144 0.0242

0.00434 0.0187 0.03125

0.0116 0.0497 0.0803

0.012 0.098 0.113

Assignment II

Page 10

Assignment II

Page 11

3. Far West Computer products is a relatively small manufacturer of office, computing, and accounting machines. Its balance sheet and income statement are:

Far West Computer Products Balance Sheet (in millions of dollars)

Cash Receivables Inventory Fixed Assets Total Assets $ 1.32 16.51 19.80 28.60 $ 66.23 Current Liabilities Long-term debt Common Stock Retained Earnings Total Liabilities and equity $15.42 30.31 1.20 19.30 $ 66.23

Income Statement Net Sales Cost of Goods sold Selling and Admin Expense Other expenses Earnings Before Taxes Taxes Net income Calculate the Following Ratios Current Assets to Current Debt Net Profit on Net Sales Average collection period Net sales to inventory Current Debt to Inventory $ 102.33 79.20 15.40 4.21 3.52 1.68 1.84

Answer
Current Assets to Current Debt = = = Current Assets / Current debt 37.63 / 15.42 2.4403

Assignment II

Page 12

Net Profit on Net Sales

= =

Net Profit / Net Sales 1.84 / 102.33 0.01798

Average Collection Period

= = =

Days * Accounts Receivable / Credit Sales 360 * 16.51 / 102.33 58.0826

Net Sales to Inventory

= = =

Net Sales / Inventory 102.33 / 19.80 5.1681

Current Debt to Inventory

= = =

Current Debt / Inventory 15.42 / 19.80 0.7787

Assignment II

Page 13

Q.4 Construct the current assets section of the balance sheet shown here from the following data: a. Yearly credit sales b. Inventory turnover c. CurrentLiabilities d. Current Ratio e. Quick Ratio f. Average Collection period $420,000 7.0 $80,000 2 1.25 36 days

Current Assets Cash Accounts Receivable Inventory Total Current Assets _______ _

Answer

Inventory Turn Over

Sales / Inventory

7.0 Inventory Inventory

= = =

420,000 / Inventory 420,000 / 7.0 60,000

Current Ratio 2 Current Asset Current Asset Assignment II

= = = =

Current Assets / Current Liabilities Current Asset / 80,000 80,000 * 2 160,000 Page 14

Average Collection period 36 15120000 Account Receivables Account Receivables

= = = = =

Day * Account Receivables / Credit Sales 360 * Account Receivables / 420,000 360 * Account Receivables 15,120,000 / 360 42,000

Current Assets Cash Accounts Receivable Inventory Total Current Assets 58,000 42,000 60,000 160,000

Assignment II

Page 15