1. The December 31, 1984, balance sheet and income statement for Mayberry Cafeterias, Inc. are

given

a. Compute the specified ratios, and compare them to the industry average (better or worse).

b. If you were appointed financial manager of the company, what decisions would you make

based on your findings?

Balance SheetCashMarketable SecuritiesAccounts ReceivableInventoryPrepaid Expenses

Current Assets

Gross plant and equipmentLess: Accumulated Dep.Net Plant and Equipment

$ 1753

166

$ 47

$ 126(57)

69

Accounts PayableNotes PayableTaxes PayableOther Accruals

Current Liabilities

Long-term debtPreferred StockCommon StockCapital contributed in excess of par

Retained Earnings

$ 7323

$ 15

$ 351020

10

26Total Assets $ 116 Total Liabilities and

Stockholders’ equity$ 116

Income StatementNet SalesCost of Goods sold

Gross Profit

Selling ExpenseGeneral and Administrative expenseDepreciation

Net Income

Interest ExpenseProfit Before taxes

TaxesNet Income

$ 1,072921152

8626

6$ 33

4$ 29

12$ 17

Assignment II Page 1

Ratios to Compute1984

MayberryBetter or Worse 1984 Industry Average

(%)Current

Quick

Debt-Equity

Times interest period

Average Collection

period

Inventory Turnover

Fixed-asset turnover

Operating profit margin

Net profit margin

Book return on assets

Book return on equity

2.86

2.31

0.51

12.36

1.06

95.71

16.15

0.036

0.019

0.192

0.271

Answer:

1 (a) .

Current Ratio = Current Assets / Current Liability

= 47/15

= 3.133

Quick Ratio = Current Assets – Inventories / Current Liabilities

= 47 – 16 / 15

= 2.066

Assignment II Page 2

Debt Equity = Total Debt / Shareholder’s Equity

= 35 / 101

= 0.3465

Times Interest period = EBIT / Interest payable

= 29 / 4

= 7.25

Average Collection = Days * Accounts Receivable / Credit Sales

Period = 360 * 3 / 1072

= 1.007

Inventory Turnover = Sales / Inventory

= 1072 / 16

= 67

Fixed Asset Turnover = Sales / Fixed Asset

= 1072 / 69

= 15.53

Operating Profit = Gross Profit / Sales

Margin = 152 / 1072

= 0.141

Assignment II Page 3

Net Profit Margin = Net Income / Sales

= 17 / 1072

= 0.0158

Book Return = Net Income / Total Assets

On Assets = 17 / 116

= 0.146

Book Return = Net Income / Shareholder’s Equity

On Equity = 17 / 101

= 0.168

Ratios to Compute1984

MayberryBetter or Worse 1984 Industry Average

(%)Current

Quick

Debt-Equity

Times interest period

Average Collection

period

Inventory Turnover

Fixed-asset turnover

Operating profit margin

Net profit margin

Book return on assets

Book return on equity

3.133

2.066

0.3465

7.25

1.007

67

15.53

0.141

0.0158

0.146

0.168

Worse (Too High)

Worse

Worse

Worse

Worse

Worse

Worse

Better

Worse

Worse

Worse

2.86

2.31

0.51

12.36

1.06

95.71

16.15

0.036

0.019

0.192

0.271

Assignment II Page 4

Answer

1 (b).

Assignment II Page 5

2. On January 1, 1982, you appointed Tanya Dawkins as financial planner and manager for you family-

owned local chain of seafood restaurants. Using the company’s balance sheets for the last three

years, evaluate her performance in each of the following areas: improving the firm’s short-term

solvency, asset utilization, and profitability.

Balance SheetDec 31, 1982(Thousands)

Dec 31, 1982(Thousands)

Dec 31, 1982(Thousands)

CashMarketable SecuritiesAccounts ReceivableInventory

Current AssetsGross plant and equipmentLess accumulated depreciation

Net Plant and equipment

Total Assets

$27162113

$77$192(61)

131

208

$28181817

$81$198(66)

132

213

$32131318

$76$219(74)

145

221

Accounts PayableWages PayableNotes Payable

Total current liabilitiesLong-term debtCommon stockAdditional paid-in capitalRetained earnings

Total Liabilities and stockholder’s equity

$293

52$8460202024

208

$263

56$8560202028

213

$204

60$8460202037

221

Assignment II Page 6

Income StatementDec 31, 1982(Thousands)

Dec 31, 1982(Thousands)

Dec 31, 1982(Thousands)

SalesCost of goods sold

Gross profitSelling expenseGeneral and admin expDepreciation

Net operating incomeInterest

Taxable incomeTaxes

Net Income

$912827$8537274

$1712$523

$921833$8841245

$18 11$734

$942851$9146107

$28 10$18

711

Ratios 1982 1983 1984 1984 Industry Average (%)

Current Ratio

Quick Ratio

Debt-Equity

Times interest earned

Avg Collection Period

Inventory turnover

Fixed-asset turnover

Operating profit

margin

Net profit margin

Book return on assets

Book return on Equity

1.36

1.21

1.03

4.51

4.96

117.8

7.61

0.036

0.012

0.098

0.113

Assignment II Page 7

Answer:

2 (a) .

Current Ratio = Current Assets / Current Liability

Quick Ratio = Current Assets – Inventories / Current Liabilities

Debt Equity = Total Debt / Shareholder’s Equity

Times Interest period = EBIT / Interest payable

Assignment II Page 8

1982 1983 1984

77 / 84

0.9166

81 / 85

0.952

76 / 84

0.904

1982 1983 1984

77 – 13 / 84

0.7619

81 – 17 / 85

0.7529

76 – 18 / 84

0.6904

1982 1983 1984

60 / 124

0.483

60 / 128

0.468

60 / 137

0.437

1982 1983 1984

17 / 12

1.416

18 / 11

1.636

28 / 10

2.8

Average Collection = Days * Accounts Receivable / Credit Sales

Period

Inventory Turnover = Sales / Inventory

Fixed Asset Turnover = Sales / Fixed Asset

Operating Profit = Gross Profit / Sales

Margin

Net Profit Margin = Net Income / Sales

Book Return = Net

Income / Total Assets

On Assets

Assignment II Page 9

1982 1983 1984

360 * 21 / 912

8.289

360 * 18 / 921

7.035

360 * 13 / 942

4.968

1982 1983 1984

912 / 13

70.153

921 / 17

54.176

942 / 18

52.333

1982 1983 1984

912 / 131

6.961

921 / 132

6.972

942 / 145

6.496

1982 1983 1984

17 / 912

0.0186

18 / 921

0.0195

28 / 942

0.0297

1982 1983 1984

3 / 912

0.00328

4 / 921

0.00434

11 / 942

0.0116

Book Return = Net Income / Shareholder’s Equity

On Equity

Ratios 1982 1983 1984 1984 Industry Average (%)

Current Ratio

Quick Ratio

Debt-Equity

Times interest earned

Avg Collection Period

Inventory turnover

Fixed-asset turnover

Operating profit

margin

Net profit margin

Book return on assets

Book return on Equity

0.9166

0.7619

0.483

1.416

8.289

70.153

6.961

0.0186

0.00328

0.0144

0.0242

0.952

0.7529

0.468

1.636

7.035

54.176

6.972

0.0195

0.00434

0.0187

0.03125

0.904

0.6904

0.437

2.8

4.968

52.333

6.496

0.0297

0.0116

0.0497

0.0803

1.36

1.21

1.03

4.51

4.96

117.8

7.61

0.036

0.012

0.098

0.113

Assignment II Page 10

1982 1983 1984

3 / 208

0.0144

4 / 213

0.0187

11 / 221

0.0497

1982 1983 1984

3 / 124

0.0242

4 / 128

0.03125

11 / 137

0.0803

3. Far West Computer products is a relatively small manufacturer of office, computing, and accounting

machines. Its balance sheet and income statement are:

Far West Computer ProductsBalance Sheet

(in millions of dollars)CashReceivablesInventoryFixed Assets

$ 1.3216.5119.8028.60

Current LiabilitiesLong-term debtCommon StockRetained Earnings

$15.4230.31

1.2019.30

Total Assets $ 66.23 Total Liabilities and equity $ 66.23

Income StatementNet SalesCost of Goods soldSelling and Admin ExpenseOther expensesEarnings Before TaxesTaxesNet income

$ 102.3379.2015.40

4.213.521.681.84

Calculate the Following Ratios

Current Assets to Current DebtNet Profit on Net SalesAverage collection periodNet sales to inventoryCurrent Debt to Inventory

Answer

Current Assets to Current Debt = Current Assets / Current debt

= 37.63 / 15.42

= 2.4403

Assignment II Page 11

Net Profit on Net Sales = Net Profit / Net Sales

= 1.84 / 102.33

= 0.01798

Average Collection Period = Days * Accounts Receivable / Credit Sales

= 360 * 16.51 / 102.33

= 58.0826

Net Sales to Inventory = Net Sales / Inventory

= 102.33 / 19.80

= 5.1681

Current Debt to Inventory = Current Debt / Inventory

= 15.42 / 19.80

= 0.7787

Assignment II Page 12

Q.4 Construct the current assets section of the balance sheet shown here from the following data:

a. Yearly credit sales $420,000

b. Inventory turnover 7.0

c. CurrentLiabilities $80,000

d. Current Ratio 2

e. Quick Ratio 1.25

f. Average Collection period 36 days

Current Assets

Cash

Accounts Receivable

Inventory _______

Total Current Assets _

Answer

Inventory Turn Over = Sales / Inventory

7.0 = 420,000 / Inventory

Inventory = 420,000 / 7.0

Inventory = 60,000

Current Ratio = Current Assets / Current Liabilities

2 = Current Asset / 80,000

Current Asset = 80,000 * 2

Current Asset = 160,000

Assignment II Page 13

Average Collection period = Day * Account Receivables / Credit Sales

36 = 360 * Account Receivables / 420,000

15120000 = 360 * Account Receivables

Account Receivables = 15,120,000 / 360

Account Receivables = 42,000

Current Assets

Cash 58,000

Accounts Receivable 42,000

Inventory 60,000

Total Current Assets 160,000

Assignment II Page 14