14 Aug Financial Statements and Ratios – Happy Hamburger
Happy Hamburger Company
Using the financial statements for Happy Hamburger Company below:
- Calculate the indicated ratios for Happy Hamburger.
- Discuss Happy Hamburger’s strengths and weaknesses as revealed by your analysis.
- Suppose Happy Hamburger doubles its sales as well as its inventories, accounts receivable, and common equity during the year. How would that information affect the validity of your ratio analysis?
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Happy Hamburger Company |
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|
Income Statement for the year ending December 31, 20XX |
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|
Sales |
1,607,500 |
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Cost of goods sold |
1,392,500 |
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Selling, general and administrative expenses |
145,000 |
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Earnings before interest and taxes (EBIT) |
70,000 |
|
Interest expense |
24,500 |
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Earnings before taxes (EBT) |
45,500 |
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Federal and state income taxes (40%) |
18,200 |
|
Net Income |
27,300 |
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Happy Hamburger Company |
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Balance Sheet as of December 31, 20XX |
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Assets |
Liabilities and Shareholder Equity |
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Cash |
80,500 |
Accounts payable |
132,000 |
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|
Accounts Receivable |
334,500 |
Current portion of debt |
84,000 |
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|
Inventories |
240,000 |
Other current liabilities |
114,000 |
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Total current assets |
655,000 |
Total current liabilities |
330,000 |
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|
Net fixed assets |
292,500 |
Long-term debt |
256,500 |
|
|
Total assets |
947,500 |
Total Liabilities |
586,500 |
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|
Common equity |
361,000 |
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Total Liabilities & Equity |
947,500 |
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|
Happy |
Industry |
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|
Hamburger |
Average |
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Current ratio |
|
2.2 |
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Days sales outstanding (based on 365 day year) |
|
36 days |
|
Inventory turnover |
|
6.7 |
|
Fixed asset turnover |
|
12.1 |
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Total asset turnover |
|
3.00 |
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Return on sales |
|
1.20% |
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Return on assets |
|
3.60% |
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Return on equity |
|
9.00% |
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Debt ratio |
|
55% |
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