Question

Case 6 Bluffton Pharmacy wo New Pharmacy Owners Learn valuable Lessons About Financial statements and Analysis has been a little more than two years since Angela Craw- and and Martin Rodriguez purchased the Bluffton Pharmacy from Frank White, the previous owner and founder, who had started the pharmacy in 1969. The two have spent many long houts in the store and have learned many valuable lessons as business owners that they had not had the opportunity to learn as employees of large chain pharmacies where they had previously worked Crawford and Rodriguez just received an e-mail from their accountant that contained the balance sheet and the come statement for Bluffton Pharmacy for the fiscal year that has just ended. The two financial statements appear below. Bluffton Pharmacy Balance Sheet, December 31, 20XX Current Assets Assets Cash Accounts Receivable Inventory Supplies Other Assets Total Current Assets $ 74,473 $112,730 $224.870 $ 21,577 10,202 S443,851 Fixed Assets Autos, net Equipment, net Furniture and Fixtures, net Total Fixed Assets Total Assets $ 33,156 S 35,706 $ 16,323 S 85,185 S529,036 Liabilities Current Liabilities Accounts Payable Notes Payable Line of Credit Payable Total Current Liabilities Long-term Liabilities Note Payable Loan Total Long-term Liabilities $ 29,585 $ 70,902 $ 32.136 $132.623 $170,880 S 93,346 S264.226 Crawford and Rodriguez, Capital Total Liabilities and Owner's Equity Owner's Equity S132,187 $529,036 779

1. Calculate the 12 ratios for Bluffton pharmacy for this year.

2. How do the ratios you calculated for this year compare to those for the pharmacy last year?

Answer 1

Answer:

Current Ratio = Current Assets / Current Liabilities = 443851 / 132623 = 3.35 (dropped down)

Quick Ratio = Quick Assets / Current Liabilities = 187203 / 132623 = 1.41 (dropped down)

Debt Ratio = Total Liabilities / Total Assets = (132623 + 264226 ) / 529036 = 0.75 (debt increased)

Debt to Net Worth Ratio = Total Liabilities / Owner's Equity = (132623 + 264226 ) / 132187 = 3.(debt increased)

Times Interest Earned = (Gross Profit - Operating Expenses ) / Interest Expense = (513719 - 446712 ) / 24879 = 2.69 times

Lowered profit ability to pay interest

Average Inventory Turnover Ratio = Cost of goods sold / Average Inventory = 1882805 / 224870 = 8.37 times (dropped down)

Average Collection Period = 365 / (Sales / Accounts Receivable) = 365 / (2396524 / 112730) =365/ 21.26 = 17.17 Days

Collection period increased

Average Payable Period = 365 / (Cost of goods sold / Accounts Payable)

                                   = 365 / (1882805 / 29585) = 365 / 63.64 = 5.74 Days (Creditors are paid early)

Net Sales to Total Assets Ratio = 2396524 / 529036 = 4.53 (dropped down)

Net Profit on Sales = Net Income / Sales = 41754 / 2396524 = 1.74% (dropped down)

Net Profits to Assets Ratio = Net Income / Total Assets = 41754 / 529036 = 7.89% (dropped down)

Net Profit to Equity Ratio = Net Income / Total Equity = 41754 / 132187 = 31.59% (Increased)

Answer 2

How do the ratios you calculated for this year compare to those for the pharmacy last year?