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% |
