Problems 1. Togo Co. has the following financial statements. Togo Co. Income Statement for the Year Sales revenue Less: Cost of goods sold Gross profit Less: Operating expenses Depreciation Operating income Less: Interest expense Income taxes Net income $18,000,000 12.000.000 $6,000,000 $3,700,000 500,000 4.200,000 $ 1,800,000 $ 100,000 800,000 900.000 900,000 Togo Co. Balance Sheet at the End of the Year Current assets: Cash $1,000,000 Accounts receivable Inventory 3,600,000 2,400,000 $7,000,000 Long-term assets: At cost $5,000,000 Accumulated depreciation 3,000,000 2,000,000 Total assets $9,000,000 Liabilities & Shareholders' Equity Current liabilities: Trade accounts payable $2,250,000 Other current liabilities Long-term liabilities: Mortgage Total liabilities 750,000 $3,000,000 1,500,000 $ 4,500,000 Equity: Common shares $1,500,000 Retained earnings 3,000,000 Total liabilities & Equity 4,500,000 $9,000,000 275 Togo Co. Statement of Retained Earnings for the Year Net income for the year Dividends Add: Retained earnings brought forward Retained earnings carried forward Required $ 3 $ 600 24 $3000 Use the information in the financial statements to answer the following questions: (a) Calculate the following ratios: (i) return on sales ratio (as a %) (ii) return on assets ratio (as a %) (iii) return on equity ratio (as a %) (b) Based on these ratios, comment on the profitability of the company (c) Calculate the following ratios: (i) the current ratio (ii) the quick ratio (d) Based on these ratios, comment on the liquidity of the company (e) Calculate the following ratios: (i) the gross profit to sales ratio (as a %) (ii) the ratio of operating expenses to sales (as a %) (iii) the operating income to sales ratio (as a %) (iv) the net income to sales ratio (as a %) (v) the interest cover ratio (vi) the dividend cover ratio (f) Based on these ratios, comment on the profitability of the company (g) Calculate the following: (i) the receivables turnover ratio (ii) the receivables collection period (iii) the inventory turnover ratio (iv) the days' sales in inventory (v) the total asset turnover ratio (h) Based on these ratios, comment on the efficiency of the company (i) Assume Togo Co.'s share price is $100 per share, and there are 100,000 shares in issue. Calculate the following: (i) the dividend payout ratio (ii) the earnings per share (iii) the price to earnings ratio (j) Based on these ratios, comment on the desirability of these shares as an investment. 7. The human resources department of Consumer Cosmetics has responsi bility for all aspects of payroll and ongoing management of the HR func- tion, hiring new employees, and terminations. The departmental report for 2020 included the following: Average number of company employees in 2020 Number of new hires Number of terminations Number of HR employees HR department costs Salaries Employee-related overhead (25% of HR salaries) Office expenses Travel & interview costs Advertising Total actual cost 5,000 500 50 100 $ 5,000,000 1,250,000 5,000,000 1,000,000 500,000 $12,750,000 In 2021, it is expected that the number of employees will rise to 5,500; there will be 400 new employees hired and no terminations. Inflation will run at 2% for all costs. Required (a) What assumptions do you have to make before you can plan you budget for 2021? (b) Using those assumptions, prepare a budget for 2021. 8. The Toothpaste Division of Consumer Cosmetics expects the following sales in 2021: Quarter 1 210,000 units Quarter 2 220,000 units Quarter 3 250,000 units Quarter 4 270,000 units of 2022. The division also anticipates sales of 200,000 units in the first quarter Each unit sold requires various raw materials, which weigh 0.5 kg and plan calls for carrying enough raw material for 20% of the following quar cost $5.00 per kg at 2021 prices. The division's inventory management ter's production at the end of each quarter. Required Prepare a production plan and budget for 2021.