01 Jul Financial Statements And Ratios – Happy Hamburger
Happy Hamburger Company
Using the financial statements for Happy Hamburger Company below:
- Calculate the indicated ratios for Happy Hamburger.
- Discuss Happy Hamburger’s strengths and weaknesses as revealed by your analysis.
- Suppose Happy Hamburger doubles its sales as well as its inventories, accounts receivable, and common equity during the year. How would that information affect the validity of your ratio analysis?
| Happy Hamburger Company | |
| Income Statement for the year ending December 31, 20XX | |
| Sales | 1,607,500 |
| Cost of goods sold | 1,392,500 |
| Selling, general and administrative expenses | 145,000 |
| Earnings before interest and taxes (EBIT) | 70,000 |
| Interest expense | 24,500 |
| Earnings before taxes (EBT) | 45,500 |
| Federal and state income taxes (40%) | 18,200 |
| Net Income | 27,300 |
| Happy Hamburger Company | ||||
| Balance Sheet as of December 31, 20XX | ||||
| Assets | Liabilities and Shareholder Equity | |||
| Cash | 80,500 | Accounts payable | 132,000 | |
| Accounts Receivable | 334,500 | Current portion of debt | 84,000 | |
| Inventories | 240,000 | Other current liabilities | 114,000 | |
| Total current assets | 655,000 | Total current liabilities | 330,000 | |
| Net fixed assets | 292,500 | Long-term debt | 256,500 | |
| Total assets | 947,500 | Total Liabilities | 586,500 | |
| Common equity | 361,000 | |||
| Total Liabilities & Equity | 947,500 | |||
| Happy | Industry | |
| Hamburger | Average | |
| Current ratio | 2.2 | |
| Days sales outstanding (based on 365 day year) | 36 days | |
| Inventory turnover | 6.7 | |
| Fixed asset turnover | 12.1 | |
| Total asset turnover | 3.00 | |
| Return on sales | 1.20% | |
| Return on assets | 3.60% | |
| Return on equity | 9.00% | |
| Debt ratio | 55% |
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