The following financial information highlights the profitability and financial stability in the last three years of FlyingFood, one of Heathrow airport’s restaurants:

Required:
Using the above information, answer each of the following questions, including an explanation of why you answered each question in this way.

a. On average, is the restaurant extending a shorter or longer credit period to its customers?

b. Over the years, has more or less money been invested in food inventory?

c. During the period, has the liquidity of the restaurant improved?

d. Do you expect the shareholders to be satisfied with their return on investment? From the shareholders’ point of view, is the profitability of the operation improving?

e. Imagine that in 20X3 the restaurant wants to finance a proposed expansion through a loan. Relative to its financial position in 20X1, do you think it will be easier or harder for the restaurant to borrow?

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Accounts receivable turnover Year Current asset ratio Food inventory turnover Debt to equity Return on shareholders' equity Sales (all on credit) 20X1 20X2 20X3 1.20 1.34 1.46 36 times 30 times 25 times 29 times 25 times 19 times 2.40 2.20 1.85 10.56% 9.44% 9.02% 945,000 952,000 948,000