Question

Step 1: Based on Dandy's financial statements, calculate ratios for the year ended December 31, 2020. Assume all sales are on credit. Show work done to get answers.

Dandy Distributors Ltd. Income Statement For the Year Ended December 31, 2020 2020 $21,133,000 16,061,080 5,071,920 2019 $19,442,360 14,970,617 4,471,743 841,000 104,400 153,600 422,660 1,521,660 832,590 95,004 152,064 431,113 1,510,771 Sales, net Less: Cost of goods sold Gross profit Operating expenses Selling Salaries and benefits Delivery Office supplies Warranty Total selling General and administrative Bad debts Depreciation Professional fees Total general and adminstrative Total operating expenses Income (loss) from operations Other income (expenses) Rent revenue Income (loss) before interest and income taxes Interest expense Income (loss) before income taxes Income taxes (recovered) Net income (loss) 633,990 1,176,660 168,900 1,979,550 3,501,210 1,570,710 646,670 1,200,193 157,077 2,003,940 3,514,711 957,032 187,000 1,757,710 682,245 1,075,465 247,357 $828,108 200,090 1,157,122 668,600 488,521 112,360 $376,162 2019 Dandy Distributors Ltd. Statement of Changes in Equity For the Year Ended December 31, 2020 2020 Retained Common earnings Pref. stock (deficit) $652,000 $19,670 $5,353,112 27,400 828,108 Total equity $5,730,250 $6,024,782 27,400 828,108 376,162 Balance (deficit) at Jan. 1 Stock issued Net income (loss) Cash dividends declared Preferred Common Balance (deficit) at Dec. 31 (39,300) (38,400) $6,103,520 (39,300) (38,400) $6,802,590 (43,230) (38,400) $6,024,782 $679,400 $19,670

Step 2: From these ratios, analyze the financial performance of Dandy.

Answer 1

Ratios:
Sl.no.	Ratio	formula	Calculation 2020	Result 2020	2019	2018	Industry	Analysis
a	Current ratio	CA/CL	6503/3507	1.85	2.4	2.7	1.9	The liquidity of the company is as per industry
b	Acid test ratio	(CA-Inv.)/CL	(6503-2420)/3507	1.16	1.5	1.7	1.2	The liquidity of the company is as per industry
c	A R collection (days)	AR*365/Sales	4020*365/21133	69.43	79	94	70	The collection period of the company is improving and at industry level
d	Days of sales in inventory	Inv.*365/COGS	2420*365/16061	55.00	60	67	52	keeping higher inventory to industry
e	Revenue operating cycle (days)	AR colle. Days + days sales in inven.	69.43+55	124.43	139	167	122	The revenue cycle is longer to industry, so fund are blocked in assets
f	Gross profit ratio	GP/Sales	5072/21133	0.24	0.23	0.228	0.257	maintaining the Gross margin as per industry
g	Operating profit ratio	OP/Sales	1571/21133	0.07	0.049	0.043	0.082	the company has a dismal operating margin to industry
h	Net profit ratio	NI/Sales	828/21133	0.04	0.019	0.016	0.043	net income margin have been improving for company and at industry level
i	Sales to total assets ratio	Sales/TA	21133/21717	0.97	0.9	0.7	1	total assets are less rotated to the industry
j	Return on total assets ratio	NI/TA	828/21717	0.04	0.042	0.034	0.078	return on the total assets is inferior to industry
k	Return on SH eq. ratio	NI/SH Eq.	828/6803	0.12	0.064	0.052	0.142	return on shareholders equity is improving but lower to industry
l	Debt to SH eq. ratio	Total debt/SH Eq.	14914/6803	2.19	2.7	3	4.1	the company is less leveraged to the industry, so more safe & not risky.
m	Times interest earned	EBIT/Interest exp.	1571/682	2.30	1.4	1.2	2.4	the company is covering its interest as per industry average
n	Earnings(loss) per CS	NI/C shares O/S	828/679	1.22	0.51	0.43	1.72	per share return of the company is lower to that of industry
o	Price-earnings ratio	MP/EPS		23	15	12	28	company market price is lower to industry average
p	Dividend yield per CS	Divi/MP		5%	5	6%	5%	yield provided by the company is as per industry