PART 1:

SMART CATERING COMPANY

Balance Sheet

Assets

Cash $6000

Account Receivable $75 000

Inventory $50 000

Total Current Assets $131 000

Fixed Assets $169 000

Total Assets $300 000

Liabilities (debt)

Current debt $65 500

Long term debt $69 500

Total debt $135 000

Net worth $165 000

Total debt and equity $300 000

Given ratios for part 1:

Total asset turnover: 2.5 times

Cash to total assets: 2%

Account receivable turnover: 10 times

Inventory turnover: 15 times

Current ratio: 2 times

Debt to total assets: 45%.

PART 2:

WARTON CATERING COMPANY

Balance Sheet

Assets

Cash $1 000 000

Account receivable $1 000 000

Inventory $4 000 000

Total current assets $6 000 000

Fixed assets $4 000 000

Total assets $10 000 000

Liabilities (debt)

Current debt $2 000 000

Long term debt $1 000 000

Total debt $3 000 000

Equity $7 000 000

Total debt and equity $10 000 000

Given ratios for part 2:

Sales are $20 million (all credit)

Sales to total asset 2.0 times

Debt to total asset 30%

Current ratio 3 times

Inventory turnover 5 times

Average collection period 18 days

Fixed asset turnover: 5 times

Answer these questions:

1. Based on the balance sheet in part 1 and part 2 and the ratios: Compare both company's performance and make comments

2. By looking at each ratios mentioned in part 1 and part 2 explain how each one would be affected by inflation.