The following information has been extracted from the financial statements of Burgers Galore Pty Ltd. The owner is concerned about the profitability, Liquidity and financial structure of the business at 30 June 2011.


Revenues (Sales on credit) 30 June 2010 $530 000 - 30 June 2011 $480 000
Cost of Sales 30 June 2010 $360 000 - 30 June 2011 $300 000
Other expenses 30 June 2010 $70 000 - 30 June 2011 $95 000
Cash and cash equivalents 30 June 2010 $20 000 - 30 June 2011 $30 000
Inventories 30 June 2010 $16 000 - 30 June 2011 $12 000
Trade accounts receivables (net) 30 June 2010 $20 000 -30 June 2011 $18 000
Non-current assets (net) 30 June 2010 $202 000 -30 June 2011 $170 000
Trade accounts payable 30 June 2010 $25 000 - 30 June 2011 $15 000
Thymes, Capital 30 June 2010 $183 000 - 30 June 2011 $165 000
Non-current liabilities 30 June 2010 $50 000 - 30 June 2011 $50 000

Inventories at 1 July 2009 was $14 000.

Required:
A. Calculate the following ratios for 2010 and 2011:
1. Profit margin
2. Return on Equity
3. Current ratio
4. Quick ratio
5. Debt ratio
6. Inventory turnover.

Can someone please tell me how I would do this Question

A good start would be to write out the formulas for each of the requirements 1-6. You can find these formulas in your text or on the internet. If you'll do that, use the info provided to fill in the numbers, and post your work, we can check it to see that you understand. That will also let us know where you are having problems and we can explain what is not being done correctly. Thanks.

this is what I got from my text book
1. Profit margin
Profit from ordinary Activities after income tax ÷ Income x 100 ÷ 1

2. Return on Equity
Profit – Preference Dividends ÷ Average ordinary equity x 100 ÷ 1
3 Current ratio
Current Assets ÷ Current Liabilities

4. Quick ratio
Cash Assets + Receivables ÷ Current Liabilities

5. Debt ratio
Total Liabilities ÷ Total Assets

6. Inventory turnover
Cost of Sales ÷ Average inventory Balance x 100 ÷ 1

but that is as far as I got don't no what to do from here

this is a online course so I don't really have a teacher I can go to

Quote:

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Originally Posted by Just Looking

A good start would be to write out the formulas for each of the requirements 1-6. You can find these formulas in your text or on the internet. If you'll do that, use the info provided to fill in the numbers, and post your work, we can check it to see that you understand. That will also let us know where you are having problems and we can explain what is not being done correctly. Thanks.

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Is anyone ever going to get back to me :confused:

Sorry. I have been on vacation and just got back yesterday. Using the formulas, the next step is to fill in the numbers. Profit margin is actually net earnings before taxes (not after taxes) divided by revenue. As an example, for 2010, net earning = 530,000 - 360,000 - 70,000. Divide that result by 530,000 and you will find your profit margin.

If you will compute the ratios for your question, we will check them for you. If you have a specific question, we can answer it.

Quote:

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Originally Posted by Just Looking

Sorry. I have been on vacation and just got back yesterday. Using the formulas, the next step is to fill in the numbers. Profit margin is actually net earnings before taxes (not after taxes) divided by revenue. As an example, for 2010, net earning = 530,000 - 360,000 - 70,000. Divide that result by 530,000 and you will find your profit margin.

If you will compute the ratios for your question, we will check them for you. If you have a specific question, we can answer it.

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1.Profit from ordinary Activities after income tax ÷ Income x 100 ÷ 1
2010 530,000 - 360,000 - 70,000 ÷ 530 000 = 18.86% 2011 480 000 – 300,000 – 95,000 ÷ 480,000 = 17.7%

2.Return on Equity Profit – Preference dividends ÷ Average ordinary equity x 100 ÷ 1
2010 396,000 ÷ 183,000 = 2.16 2011 330,000 ÷ 165,000 = 2

3 Current ratio Current Assets ÷ Current Liabilities
2010 396,000 ÷ 25,000 = 15.84 2011 330,000 ÷ 15,000 = 22

4.Quick ratio Cash Assets + Receivables ÷ Current Liabilities
2010 360,000 + 20,000 ÷ 25,000 = 15.2 2011 300,000 + 18,000 ÷ 15,000 = 21.2

5.Debt ratio Total Liabilities ÷ Total Assets
2010 788,000 ÷ 688,000 = 1.145 2011 710,000 ÷ 625,000 = 1.136

6. Inventory turnover Cost of Sales ÷ Average inventory Balance x 100 ÷ 1
2010 360,000 ÷ 16,000 x 100 ÷ 1 = 2,250 2011 300,000 ÷ 12,000 x 100 ÷ 1 = 2,500

can you please check to see if I'm right

Thanks for showing your work. Generally, I would show the ratios to two decimals.


1. Correct
2. I'm not seeing how you got your profit figures. You actually calculated the net income in #1. You are dividing by the correct amount.
3. You are using the correct numbers for current liabilities. Can you tell me how you computed your current assets - which accounts did you include?
4. You are picking up the numbers for sales instead of cash. The rest is okay. I'm wondering if the term "cash assets" threw you off. This just means cash and marketable securities.
5. You only want to pick up the liabilities and assets to compute this. I can see that you added Sales into your assets. Also the new number will be your denominator, where you have it as your numerator. It looks like you added in Cost of Sales, Other expenses and Capital to get total liabilities, but it should be just current liabilities (a/p) and non-current liabilities.
6. You have the right idea but the formula is simply: Sales/Inventory
You don't have to multiply by 100, making the answers 22.5 and 25.

Let me know if you need further clarification. Thanks.

Quote:

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Originally Posted by Just Looking

Thanks for showing your work. Generally, I would show the ratios to two decimals.


1. Correct
2. I'm not seeing how you got your profit figures. You actually calculated the net income in #1. You are dividing by the correct amount.
3. You are using the correct numbers for current liabilities. Can you tell me how you computed your current assets - which accounts did you include?
4. You are picking up the numbers for sales instead of cash. The rest is okay. I'm wondering if the term "cash assets" threw you off. This just means cash and marketable securities.
5. You only want to pick up the liabilities and assets to compute this. I can see that you added Sales into your assets. Also the new number will be your denominator, where you have it as your numerator. It looks like you added in Cost of Sales, Other expenses and Capital to get total liabilities, but it should be just current liabilities (a/p) and non-current liabilities.
6. You have the right idea but the formula is simply: Sales/Inventory
You don't have to multiply by 100, making the answers 22.5 and 25.

Let me know if you need further clarification. Thanks.

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Lets hope I'm right now

Profit from ordinary Activities after income tax ÷ Income x 100 ÷ 1
2010 530,000 - 360,000 - 70,000 ÷ 530 000 = 18.86% 2011 480 000 – 300,000 – 95,000 ÷ 480,000 = 17.7%

2.Return on Equity Profit – Preference dividends ÷ Average ordinary equity x 100 ÷ 1
2010 530,000 ÷ 183,000 = 2.8 2011 480,000 ÷ 165,000 = 2.9

3 Current ratio Current Assets ÷ Current Liabilities
2010 530,000 ÷ 25,000 = 21.2 2011 480,000 ÷ 15,000 = 32

4.Quick ratio Cash Assets + Receivables ÷ Current Liabilities
2010 530,000+ 20,000 ÷ 25,000 = 22 2011 480,000 + 18,000 ÷ 15,000 = 33.2

5.Debt ratio Total Liabilities ÷ Total Assets
2010 75,000 ÷ 222,000 = 2.96 2011 65,000 ÷ 188,000 = 2.8

6. Inventory turnover Cost of Sales ÷ Average inventory Balance x 100 ÷ 1
2010 360,000 ÷ 16,000 = 22.5 2011 300,000 ÷ 12,000 = 2.5

2. You are using your sales figure. Your net profit is the net income you computed in #1, e.g. for 2010 it is net earning = 530,000 - 360,000 - 70,000.

3. You are using the sales figure instead of figuring out the current assets. There are 2 types of assets, current and long-term. Typical current assets include cash, cash equivalents, short-term investments, accounts receivable, inventory and the portion of prepaid liabilities which will be paid within a year.

4. You are again picking up the sales figures. You want only the cash and receivables amounts. For 2010, you would have ($20,000+$20,000)/$25,000.

5. Your total liabilities are right. Your total assets only include cash and non-current assets. You also need to include inventory and receivables as they are both assets.

6. Check your calculation of $300,000/$12,000. I think you just entered something wrong.