Question

PSA7.1 Calculate ratios to make business decisions. LO1 As a recent graduate of a cooking course, James Brady is considering investing in a café that his best friend, Toby Dwyer, owns. Following are selected items from financial records of the café Credit card sales Accounts payable Food supplies Outstanding bank loan Rent payable Accounts receivable $56000 12 400 29500 22000 14 800 7200 Operating expenses paid GST receivable Cash at bank Loan payment Cash sales Payment to suppliers $18000 4900 3200 12 000 28 500 21 000 Required (a) Calculate (i) cash inflows, (ii) cash outflows, (iii) assets and (iv) liabilities for Toby's cafe business (b) Based on requirement (a), what can James infer in relation to investing in Toby's cafe? (c) What other business information should James seek to make the decision of whether to invest in Toby's business?

Answer 1

i)	Calculation of Cash Inflows
	Cash Sales		28500
	Collection from customers (credit sales - accounts receivable)	56000 - 7200	48800
	Total Cash Inflows		77300

ii)	Calculation of Cash Outflows
	Payment to Suppliers		21000
	Operating Expenses		18000
	Operating Cash Outflows		39000
	Loan Payment		12000
	Total Cash Outflows		51000

iii)	Assets
	Food Supplies		29500
	Accounts Receivable		7200
	GST Receivable		4900
	Cash at bank		13200
	Total Assets		54800

iv)	Liabilities
	Accounts Payable		12400
	Outstanding Bank loan (Alternatively total outstanding could be considered as question do not specify if the balance is after repayment or before)	(22000 - 12000)	10000
	Rent Payable		14800
	Total Liabilities		37200