Chopped By Liam$-$The Story of a Food Truck

Background Information

Liam Longridge owns Chopped By Liam, a locally run, organic food truck in Winona, Minnesota. Liam has just received his year$-$end financial statements from his CPA and when he sees his gross income and net profit, he is unhappy. With sales of $$500,000,$ why is he always short on cash for payroll and ingredients? One of his largest food ingredient suppliers, a small local farmer, told him he would no longer have Net $30$ terms but would need to prepay for his orders. This will put a huge strain on Liam as he tries to scramble for funds. He calls his CPA to set up a meeting with her to figure out what is going on with Chopped$-$A Food Truck, and why he is struggling with cash.

Questions:

Part $1$

$1.$ Calculate the $12$ financial ratios discussed in your learning plan for Chopped By Liam using the provided financial information.

$2.$ After reviewing the ratios, are there any that look off? If so$,$ which ratios why do you believe are cause for concern?

Part $2($NOTE: A document is in your resources to help with ratio formulas!$)$

$1.$ Using the industry ratios that have been provided, compare Chopped By Liam$$s ratios with those for the industry. Do you see any red flags?

$2.$ What might be causing the deviations between Chopped By Liam$$s and industry ratios?

Part $3$

$1.$ What would you recommend Liam do to avoid these issues in the future?

For Submission in D$2$L:

$1.$ Prepare an Excel spreadsheet with the financial statement information and ratio calculations.

$2.$ Prepare an outline of your recommendations to help Liam understand how he may get out of this $$cash crunch$$ situation.

Financial Statements

Chopped By Liam

Income Statement

For the year ended December $31,2022$

Food Sales $$500,000$

Cost of Goods Sold $$200,000$

Gross Profit $$300,000$

Payroll Expense $$195,000$

Repairs, Maintenance and Cleaning $$45,000$

General and Administrative $$45,000$

Total Expenses $$285,000$

Earnings Before Interest & Taxes $($EBIT$)$ $$15,000$

Interest $$5,000$

Income before tax $$10,000$

Tax $($@ $25\%$ rate$)$ $$2,500$

Net Income$/($Loss$)$ $$7,500$

Chopped By Liam

Statement of Owner's Equity

For the year ended December $31,2022$

Beginning Capital $$0$

Owner Contributions $$5,000$

Net Income$/($Loss$)$ $$7,500$

$$12,500$

Owner Withdrawals $$0$

Ending Capital $$12,500$

Chopped By Liam

Balance Sheet

As of December $31,2022$

Assets

Current Assets

Cash and Cash Equivalents $$29,500$

Accounts Receivable $$10,000$

Merchandise Inventory $$25,000$

Prepaid Expenses $$7,500$

Total Current Assets $$72,000$

Food Truck $$80,000$

Total Assets $$152,000$

Liabilities

Current Liabilities

Accounts Payable $$74,250$

Wages Payable $$10,250$

Total Current Liabilities $$84,500$

Loan on Food Truck $$55,000$

Total Liabilities $$139,500$

Owner's Equity $$12,500$

Total Liabilities and Owner's Equity $$152,000$

Chopped By Liam

Statement of Cash Flows

For the year ended December $31,2022$

Cash provided by operating activities

Net Income $($loss$)$ $$7,500$

Changes in operating assets & liabilities

Inventories $($$$25,000)$

Accounts Receivables $($$$10,000)$

Accounts Payable $$10,250$

Accrued expenses $$7,500$

Cash provided by $($used by$)$ operations $($$$10,000)$

Cash provided by investing activities

Purchases of fixed assets $($$$80,000)$

Cash provided by $($used by$)$ investing $($$$80,000)$

Cash provided by financing

Long$-$term borrowing $$55,000$

Owner contributions $$5,000$

Payment of Debt and Financing Costs $($$$5,000)$

Cash provided by $($used by$)$ financing $$55,000$

Change in cash $($$$35,000)$

Beginning cash balance $$0$

Ending cash balance $($$$35,000)$

Industry Ratios

Liquidity & Solvency Ratios

Current Ratio $2\mathrm{.}3$

Quick Ratio $0\mathrm{.}98$

Debt Ratio $1\mathrm{.}04$

Debt to Net Worth Ratio $9$

Times Interest Earned Ratio $3\mathrm{.}9$

Return on Equity $($ROE$)4\mathrm{.}9$

Operating Ratios

Average Inventory Turnover Ratio $6\mathrm{.}75$

Average Receivables Turnover Ratio $8$

Average Collection Period Ratio $20$

Payables Turnover Ratio $5\mathrm{.}8$

Average Payable Period Ratio $60\mathrm{.}1$

Net Sales to Total Assets Ratio $3\mathrm{.}1$

Profitability Ratios

Net Profit on Sales Ratio $4\mathrm{.}9\%$

Net Profit to Assets Ratio $4\mathrm{.}44\%$

Net Profit to Equity Ratio $1\mathrm{.}7$