Lotus Coffee imports raw specialty coffee beans from growers in Dak Lak, a province of Vietnam. Specialty coffee is considered to be Arabicanfilfers highest standard. To be recognizettons specialty coffeeethe beans must undergo strict evaluation; the growers must fully comply with the prescribed production process, from the stage of cultivation, to harvesting, preliminary treatment, preservation, etc. Once receiving the coffee beans shipment, Lotus Coffee implements strict standards in the roasting process. It then packages these fabulous beans for sale to consumers across Canada. Lotus Coffee packages all its beans into 454-gram packages. Most of Lotus Coffee's customers are specialty coffee shops. However, it does have a small retail space where customers may come to purchase roasted coffee beans for home use. About 20% of its total sales are paid in cash, and the remaining 80% is billed to coffee shops. Of the sales billed to coffee shops, 60% are collected within the same quarter and the remaining is collected in the following quarter. All expenses are paid the month they are incurred. The company's year-end is September 30th. 5:20 Sid Larry provided the following information (EXCEL APPENDIX A). 2023 Operating Projections Q1 02 03 04 Oct-Dec Jan-Mar Apr-Jun Jul-Sep Expected package sales 60.000 50,000 40,000 40,000 Unit selling price S10 SIO SIO Stall costs Estimated to be 20% of sales Operating Expenses Estimated to be 30% of sales Depreciation expense $11,000 $11,000 $11,000 $11,000 Raw material cost per kilogram $6.60 S6,60 $7.701 $7.70 Lotus purchases its coffee beans in kilogram quantities (1000 grams 1 kilogram). Shipments from Vietnam can be unreliable, so Larry prefers to have as much raw material (unroasted beans) on hand as possible. He likes to maintain a balance of raw materials equal to approximately 60% of next quarter sales. All the roasted beans are sold in the same quarter they are made to maintain freshness. He expects sales for the first quarter in 2024 to be 65,000 packages. Larry plans to replace the roasting equipment in May 2023 with A. brand-ney Washine that will produce even more aromatic feaffee beans starting in the next fiscal year. The expected cost is approximately $100,000 and will be paid for in cash. The company needs to repay $12,000 per month on the long- term non-interest-bearing loan from Larry's father. In addition, he pays himself dividends of $15,000 per month in lieu of salary. Lotus Coffee has a $250,000 line of credit that can be drawn from for short-term financing. Interest is paid quarterly, and it is calculated as 4.5% per year on the outstanding balance at the end of the previous quarter. The line of credit balance is zero at the beginning of fiscal 2023. Any excess cash is immediately used to pay down the line of credit. Larry wants to see a complete sales budget, direct materials budget shown in kilograms and total cost, income statement budget, schedule of cash collections and cash budget for 2023 each by quarter and in total. Larry is also curious about financial ratios. He would like you to explain the concept of each of the three main categories of ratios. He has provided a set of comparative financial statements and ratio calculations from the 2021 results (EXCEL APPENDIX B). From the 2022 financial statements, Larry would like you to calculate the 2022 ratios for each ratio listed from 2021. Larry wants to know how Lotus Coffee is doing compared to the previous year including any recommendations for improvement. He is particularly interested in a conclusion of how Lotus Coffee is doing under each category of ratio. As this is a huge undertaking, your brother suggests that you get a few of your friends from school to help you and to ignore all taxes for now. In appreciation, you and your friends will receive gift cards to your favourite coffee shops that serve Lotus Coffee beans. Time to call them up, convince them to help and get to work. After all, you do need coffee to study and complete all of the assignments in this college life. Case #2 Lotus Coffee - Appendix B Comparative Financial Statements and Industry Ratios Lotus Coffee Inc Comparative Income Statement Year Ended September 30 2021 1.275.000 $22.220 R$2.7801 2022 1.440 479.494 90576 Coffee sales Cost of goods sold Gross profit Operating expenses Stall expense General operating expense Depreciation expense Income from operations Other income and expenses Interest expense Income before income takes 255.000 318.750 44,000 235.000 288.000 300,000 44.000 268575 0 235,0301 268.575 Lotus Coffee Inc Comparative Balance Sheet At September 30 2001 2002 Assets Cut Assets Cash Accounts receivable Materials Inventory Total Current Assets 25.000 150,000 98,8812 273,88121 30.000 120.000 107.870 257.8704 120.000 160,000 Proptery Plant and Equipment Land Building (net of depreciation) Equipment (net of depreciation) Total Property. Plant and Equipment Total Assets 120.000 130,000 30.000 280.000 537.8704 324.000 597,881.21 0 Liabilities and Shareholders' Equity Current Liabilities Line of credit Accounts payable Current portion of long-term debe Total Current Liabilities 144,000 148,571 144.000 144.000 Non-Current Liabilities Loan payable Total Liabilities 300.000 448,5871 156,000 300.000 Shareholders' Equity Common shares Retained carings Total Shareholders' Equity Total Liabilities and Shareholders' Equity 50,000 99,294 149,2941 597,881 50.000 187.870 237870 517570 Financial Ration Accounts receivable fumover Asset Turnover Current ratio Debt to total assets Gross profit margin Profit (Operating) martin Return on assets Working capital 2021 63 2.133 11 75.0 669 1849 125.294.2 Lotus Coffee imports raw specialty coffee beans from growers in Dak Lak, a province of Vietnam. Specialty coffee is considered to be Arabicanfilfers highest standard. To be recognizettons specialty coffeeethe beans must undergo strict evaluation; the growers must fully comply with the prescribed production process, from the stage of cultivation, to harvesting, preliminary treatment, preservation, etc. Once receiving the coffee beans shipment, Lotus Coffee implements strict standards in the roasting process. It then packages these fabulous beans for sale to consumers across Canada. Lotus Coffee packages all its beans into 454-gram packages. Most of Lotus Coffee's customers are specialty coffee shops. However, it does have a small retail space where customers may come to purchase roasted coffee beans for home use. About 20% of its total sales are paid in cash, and the remaining 80% is billed to coffee shops. Of the sales billed to coffee shops, 60% are collected within the same quarter and the remaining is collected in the following quarter. All expenses are paid the month they are incurred. The company's year-end is September 30th. 5:20 Sid Larry provided the following information (EXCEL APPENDIX A). 2023 Operating Projections Q1 02 03 04 Oct-Dec Jan-Mar Apr-Jun Jul-Sep Expected package sales 60.000 50,000 40,000 40,000 Unit selling price S10 SIO SIO Stall costs Estimated to be 20% of sales Operating Expenses Estimated to be 30% of sales Depreciation expense $11,000 $11,000 $11,000 $11,000 Raw material cost per kilogram $6.60 S6,60 $7.701 $7.70 Lotus purchases its coffee beans in kilogram quantities (1000 grams 1 kilogram). Shipments from Vietnam can be unreliable, so Larry prefers to have as much raw material (unroasted beans) on hand as possible. He likes to maintain a balance of raw materials equal to approximately 60% of next quarter sales. All the roasted beans are sold in the same quarter they are made to maintain freshness. He expects sales for the first quarter in 2024 to be 65,000 packages. Larry plans to replace the roasting equipment in May 2023 with A. brand-ney Washine that will produce even more aromatic feaffee beans starting in the next fiscal year. The expected cost is approximately $100,000 and will be paid for in cash. The company needs to repay $12,000 per month on the long- term non-interest-bearing loan from Larry's father. In addition, he pays himself dividends of $15,000 per month in lieu of salary. Lotus Coffee has a $250,000 line of credit that can be drawn from for short-term financing. Interest is paid quarterly, and it is calculated as 4.5% per year on the outstanding balance at the end of the previous quarter. The line of credit balance is zero at the beginning of fiscal 2023. Any excess cash is immediately used to pay down the line of credit. Larry wants to see a complete sales budget, direct materials budget shown in kilograms and total cost, income statement budget, schedule of cash collections and cash budget for 2023 each by quarter and in total. Larry is also curious about financial ratios. He would like you to explain the concept of each of the three main categories of ratios. He has provided a set of comparative financial statements and ratio calculations from the 2021 results (EXCEL APPENDIX B). From the 2022 financial statements, Larry would like you to calculate the 2022 ratios for each ratio listed from 2021. Larry wants to know how Lotus Coffee is doing compared to the previous year including any recommendations for improvement. He is particularly interested in a conclusion of how Lotus Coffee is doing under each category of ratio. As this is a huge undertaking, your brother suggests that you get a few of your friends from school to help you and to ignore all taxes for now. In appreciation, you and your friends will receive gift cards to your favourite coffee shops that serve Lotus Coffee beans. Time to call them up, convince them to help and get to work. After all, you do need coffee to study and complete all of the assignments in this college life. Case #2 Lotus Coffee - Appendix B Comparative Financial Statements and Industry Ratios Lotus Coffee Inc Comparative Income Statement Year Ended September 30 2021 1.275.000 $22.220 R$2.7801 2022 1.440 479.494 90576 Coffee sales Cost of goods sold Gross profit Operating expenses Stall expense General operating expense Depreciation expense Income from operations Other income and expenses Interest expense Income before income takes 255.000 318.750 44,000 235.000 288.000 300,000 44.000 268575 0 235,0301 268.575 Lotus Coffee Inc Comparative Balance Sheet At September 30 2001 2002 Assets Cut Assets Cash Accounts receivable Materials Inventory Total Current Assets 25.000 150,000 98,8812 273,88121 30.000 120.000 107.870 257.8704 120.000 160,000 Proptery Plant and Equipment Land Building (net of depreciation) Equipment (net of depreciation) Total Property. Plant and Equipment Total Assets 120.000 130,000 30.000 280.000 537.8704 324.000 597,881.21 0 Liabilities and Shareholders' Equity Current Liabilities Line of credit Accounts payable Current portion of long-term debe Total Current Liabilities 144,000 148,571 144.000 144.000 Non-Current Liabilities Loan payable Total Liabilities 300.000 448,5871 156,000 300.000 Shareholders' Equity Common shares Retained carings Total Shareholders' Equity Total Liabilities and Shareholders' Equity 50,000 99,294 149,2941 597,881 50.000 187.870 237870 517570 Financial Ration Accounts receivable fumover Asset Turnover Current ratio Debt to total assets Gross profit margin Profit (Operating) martin Return on assets Working capital 2021 63 2.133 11 75.0 669 1849 125.294.2