Based on your help and advice, Joe Draft decided to start his business as a Private Corporation called Draft Beer. On January 1, 2019. "Draft Beer" was incorporated! As part of the articles of incorporation, Draft Beer is authorized to issue an unlimited number of common shares and 50,000 preferred shares. Joe has now been in operations for 3 years (2019, 2020 and 2021), below is Draft Beer's Financial information. Joe has requested that you analyze the statements using the ratios requested on the blue cells to the right. Your answers should be in the cells noted in blue.
IMPORTANT: Do not make any changes to the financial statements below.
Draft Beer Company			Requirement #1 - Ratio Analysis
Statement of Income			Please ensure you read the notes to the financial statements. Please calculate each of the following ratios for 2018 and 2019. Answers must be in the blue cells provided using formulas in Excel (do not use your calculator and input your final answer into Excel).
For the year ended December 31
	2021	2020			Liquidity Ratio	2021	2020
Sales Revenue (Note 1)	$27,89,456	$33,01,452			Current Ratio	Current Assets / Current Liabilities
Cost of Goods Sold:	13,25,369	15,01,551			Quick Ratio	(Current Assets - Inventory - Prepaid Expenses)/Current Liabilities
Gross Margin	14,64,087	17,99,901			Activity Ratio
					Accounts Receivable Turnover	Credit Sales / Average Accounts Receivable (net)
Operating expenses					Average Collection Period	365 / Accounts Receivable Turnover
Sales and marketing expenses	7,25,136	7,35,648			Inventory Turnover	Cost of Goods Sold / Average Inventory
Occupancy expenses	1,50,243	1,55,243			Days to Sell Inventory	365 days / Inventory Turnover
Administration expenses	2,01,675	2,56,932			Accounts Payable Turnover	Credit Purchases/ Average Accounts Payable
Total operating expenses	10,77,054	11,47,823			Average Payment Period	365 / Accounts Payable Turnover
Operating income					Solvency Ratios
Non-operating or other					Debt to Equity	Net debt / Shareholders Equity
Gain (loss) on sale of land and building	1,26,450	14,025			Net Debt as a Percentage of Total Capitalization	Net debt /(Net Debt + Shareholders Equity)
Interest (expense) income	15,246	25,334			Profitability Ratios
Total non-operating	1,41,696	39,359			Gross Profit/Margin	Gross Margin (Profit) / Sales Revenue x 100
Income before tax	2,45,337	6,12,719			Profit Margin	Net Income / Sales Revenue
Income tax expense	74,834	2,14,170			Return on Equity	Net Income / Average Total Shareholders Equity
Net Income (Loss):	1,70,503	3,98,549			Return on Assets	Net Income / Average Total Assets
Note 1: Management has determined that 70% of its sales were on credit in 2021, and 80% in 2020.
					Requirement #2 - Financial Statement Analysis
Draft Beer Company			a) Joe has a policy of collecting accounts receivable within 45 days. How does the average collection period compare to these terms in 2020?
Statement of Changes in equity
For the year ended December 31
	2021	2020
Retained earnings, January 1, 2019	4,15,259	2,92,055
Add: Net income	1,70,503	3,98,549			b) Has the accounts receivable turnover ratio improved or worsened from 2020 to 2021?
Less: Dividends declared	(85,000)	(2,75,345)			c) What has happened to the average collection period from 2020 to 2021?
Retained earnings, December 31, 2019	5,00,762	4,15,259			d) Provide 2 suggestions to Joe to speed up the collection of receivables from customers?
					e) The bank loan has a covenant requiring a maximum debt to equity ratio of 1.5 to 1, is the company meeting this obligation?
Draft Beer Company
Statement of Financial Position
As at December 31		f) Joe is thinking of acquiring Crown Co. and will require an addition $1,500,000 bond to do so. Will the company still meet the covenant requirement given this additional debt?
						Before Acquisition	After Acquisition
	2021	2020	2019		Debt to Equity
Assets
Current assets:					g) If Joe is unable to issue the additional bond for $1,500,000 what other options does he have to still complete the acquisition without losing additional ownership in his company?
Cash	90,235	1,12,547	1,55,789
Accounts receivable, net (Note 2)	4,81,851	4,51,234	2,89,456
Prepaid expenses	18,225	21,456	15,497
Inventory	4,42,265	4,51,235	3,25,876
Total current assets	10,32,576	10,36,472	7,86,618
Non-Current Assets					h) Has the company's gross profit/margin improved or worsened from 2020 to 2021?
Marketable securities	4,50,000	3,25,000	25,000
Property plant & equipment, net	7,54,245	7,25,642	6,81,080
Total assets	22,36,821	20,87,114	14,92,698		i) Provide two suggestions to Joe on how he can improve his gross margin
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	3,75,659	2,96,455	1,50,243		j) Industry suppliers expect payment within 30 days. How does the average payment period compare to these terms?
Unearned revenue	1,50,000	1,00,000	25,000
Bank loan, current portion (Note 3)	1,00,000	1,00,000	1,00,000
Total current liabilities	6,25,659	4,96,455	2,75,243		k) Explain to Joe what types of issues might arise if the payment period exceeds industry standards.
Non-Current liabilities:
Bank loan payable (Note 3)	5,10,400	6,25,400	7,25,400
Total liabilities	11,36,059	11,21,855	10,00,643		l) Summarize for Joe the overall assessment of the health of his company?
Shareholders' equity
Common shares	6,00,000	5,50,000	2,00,000
Retained earnings	5,00,762	4,15,259	2,92,055
Total Shareholders' Equity	11,00,762	9,65,259	4,92,055
Total liabilities and shareholders' equity	22,36,821	20,87,114	14,92,698
Note 2: Accounts receivable is net of allowance for doubtful accounts (AFDA).
Note 3: Only the bank loan is interest bearing debt