Framing Industry Ratios

Liquidity & Solvency Ratios:

Current Ratio 2.1

Quick Ratio 0.95

Debt Ratio 1.05

Debt to Net Worth Ratio 8.5

Times Interest Earned Ratio 4.2

Return on Equity (ROE) 5.25

Operating Ratios:

Average Inventory Turnover Ratio 6.85

Average Receivables Turnover Ratio 10

Average Collection Period Ratio 36.5

Payables Turnover Ratio 5.8

Average Payable Period Ratio 62.9

Net Sales to Total Assets Ratio 3.3

Profitability Ratios:

Net Profit on Sales Ratio 4.8%

Net Profit to Assets Ratio 4.55%

Net Profit to Equity Ratio 1.8

3. Statement of Cash Flows

Cash is King! Many experts believe the cash flow statement to be the most salient of the financial statements. It highlights where the cash comes in and where the cash goes out in a company. It is a helpful tool to analyze if cash is being managed in the best way possible. There are two methods used, the direct and indirect method. Most small business owners, professionals, and/or students will use the direct method, but it is good to be familiar with both. Read the following scenario and complete the questions and tasks below.

Scenario

Below is information from the Biddle Company income statement and current assets and current liabilities from the balance sheet as of December 31, 2017 and 2018. Below is information from the Biddle Company income statement and current assets and current liabilities from the balance sheet as of December 31, 2017 and 2018.

Biddle Company

Income Statement

For Year Ended December 31, 2018

Sales revenue $142,200

Expenses

Cost of goods sold $57,000

Depreciation expense $19,500

Salaries expense $33,000

Rent expense $10,500

Insurance expense $5,300

Interest expense $5,100

Utilities expense $4,300

Net Income $7,500

Biddle Company

Selected Balance Sheet Accounts

At December 31 2018 2017

Accountsreceivable $7,100 $8,800

Inventory $3,480 $2,290

Accounts payable $5,900 $7,600

Salaries payable $1,180 $850

Utilities payable $520 $310

Prepaid insurance $410 $580

Prepaid rent $520 $330

Questions

• Prepare the cash flows from operating activities section of the company's 2018 statement of cash flows using the direct method.
• Prepare the cash flows from operating activities section of the company's 2018 statement of cash flows using the indirect method.
• Compare the two statements of cash flows and comment on the differences. Be specific.