Question

d. Which company is Toys “R” Us? The Gillele Company, DNUT SERIAL PROBLEM: KATE'S CARDS (/Vote: This is a continuation of the Serial Problem: Kate's Cards from Chapter 7 through Chan SP13. Kate is very pleased with the results of the first year of operations for Kate's Cards. S year on a high note, with the company's reputation for producing quality cards leading to ness than she can currently manage. Kate is considering expanding and bringing in seve ees. In order to do this, she will need to find a larger location and also purchase more eau this means additional financing. Kate has asked you to look at her year-end financial state you were a banker considering giving Kate a loan. Comment on your findings and provide tions to support your comments. e's Cards. She ended the cards leading to more busi- bringing in several employ- purchase more equipment. All Lend financial statements as if ur findings and provide calcula- KATE'S CARDS Income Statement Year Ended August 31, 2019 $185,000 106,000 79,000 ......... Sales revenue.. ...... ............. Cost of goods sold ....... Gross profit. ............ Operating expenses Wages Consulting...... Insurance ... Utilities Rent ........... Depreciation ....... Total operating expenses ... Income from operations .... Interest expense........................................ Income before income tax ............................ .................................... Income tax expense.................. Net income ........ 18,000 11,850 1,200 2,400 14,400 3,250 51,100 27,900 900 27,000 5,400 $ 21,600

Answer 1

Answer is given below with all workings of ratio calculation

Based on ratio loan can be extended

Ratio 0.42 31.00 4.86 3.04 17 21.70 Days Summary of ratios Solvency Ratio: Debt Ratio Times Interest earned Liquidity Ratio: Current Ratio Acid-test ratio/Liquid ratio Accounts receivable turnover Number of days' sales in inventory Inventory turnover Number of Days' sales in Inventory Profitability ratio: Gross Margin Operating profit Margin Net Profit Margin Asset Turnover Return on Total Assets Return on Stockholders Equity Return on Common Stockholders Equity 55.09 Days 42.7% 15.1% 11.7% 3.10 36.2% 61.2% 170.3% Analysis Based on above ratio below is summary of financial statement Current ratio is well above the requirement of 2:1 Acid-test ratio is also well above the requirement of 1 Debt ratio is lower and hence more bank loan can be taken to leverage Accounts Receivable ratio is good Interest coverage ratio is good and above standard Profitability ratios are good Conclusion Loan can be extended to Kate's Card Ratio working Solvency Ratio Debt Ratio Long term Debt Stockholders Equity $15,000 $35,300 0.42 Times Interest earned EBIT* Interest *Net Profit + Income tax +Interest $27,900 $900 31.00 Net profit Add: Income tax Interest expense EBIT $21,600 $5,400 $900 $27,900 Liquidity Ratio Current Ratio Current Assets Current Liabilities $45,400 $9,350 93.50 4.86 4.86 Acid-test ratio/Liquid ratio Quick Current Assets $28,400 3.04 Current Liabilities $9,350 Note Prepaid expenses and Inventory is excluded in Current Assets $9,3503.04 Accounts receivable turnover Sales Average accounts receivable $185,000 $11,000 16.82 Days Number of days' sales in inventory Number of days Accounts receivable turnover 365 16.82 21.70 Average accounts receivable Sales X 365 21.70 Inventory turnover Cost of Goods Sold Average inventory $106,000 $16,000 6.63 Number of Days' sales in Inventory Days 365 365 7 55.09 Inventory turnover Profitability Ratio Gross Margin Gross Profit Sales $79,000 $185,000 42.7% Operating profit Margin Operating profit Sales $27,900 $185,000 15.1% Net Profit Margin Net Profit Sales $21,600 $185,000 11.7% Asset Turnover Sales Total Assets $185,000 $59,650 3.10 Return on Total Assets Net Profit Total Assets $21,600 $59,650 36.2% Return on Stockholders Equity Net Profit Stockholders Equity $21,600 $35,300 61.2% Return on Common Stockholders Equity Net Profit to Common Stockholder* Common Stockholders Equity *Net profit-preference dividend $21,300 $30,300 70.3% Net profit Less: Preference dividend Net Profit to Common Stockholder $21,600 $300 $21,300