questions 1-3

CREATING A SUCCESSFUL FINANCIAL PLAN Operating Ratios turnover ratio All Is Not Paradise in Eden's Garden: Part 2 Remember Joe and Kaitlin Eden, co-owners of Eden's Garden? Assume the role of Shelley Edison, their accountant. Tomorrow, you have scheduled a meeting with them to review their company's financial statements and to make recommendations about how they can improve their companys financial position. Use the work- sheet below to summarize the ratios you calculated earlier in this 9 days 17 drys Average payable period ratio t Net sales to total assets ratio Profitability Ratios Net profit on sales ratio Net profit to asset ratio Net profit to equity ratio Risk Managemens Association's Anssal Stotement Stadles Ratio Comparison 15.0% Eden's Garden Supply Garden Industry Median Liquidity Ratios Current ratio Quick ratio Leverage Ratios Debt ratio Debt to net worth ratio Times interest earned ratio chapter. Then compare them against the industry averages fon Risk Management Association Annual Statement 1. Analyze the comparisons you have made of Eden's Garden with those from the Risk Management Association 0.6 What "red flags" do you see 2. What might be causing the deviations you have observe 3. What recommendations can you make to the Edens to prove their company's financial performance in the futue 2.6 Break-Even Analysis Conduc a bresk-even analysis forAnother key component of every sound financial plan is a breakeven analysis. A pany's break-even point is the level of operation (typically expres tion quantity) at which it neither earns a profit nor incurs a a small company break-even point the level of operation (sales dollars revenue equals expenses-that is, the firm "breaks even." By analyzinga or production quantity) at which a entrepreneur can calculate the minimum leve company neither earns a profit nortion. These techniques can then be refined to project the sales ne incurs a loss loss. At this level of activity s and exp of activity required to keep a compui profit. Most potential lenders and investors expect entreprencurs to prepm addition to assist them in evaluating the earning potential of the new business. n simple, useful screening device for financial institutions, breakeven t hw npro cessarytoetrt l s e p addition so ils beieg analysis can also serve planning device for entrepreneurs. It can show an entrepreneur just planned business venture is likely to be. Calculating the Break-Even Point An entrepreneur can calculate a company's breakeven point by using as and vari formula. To begin the analysis, the entrepreneur must determine fixe Fixed expenses are those that do not vary with changes in the a simpie rab fixed expenses expenses that do not vary with ales of eriaeo e g., rent, depreciation expense, insurance, lease or loan paymentsof sales penses, on the other hand, vary directly with changes in the volume of s changes in the valume production af sales or variable expensesiments of both. These semi-variable expenses change, although not osts reae (e-g, raw material costs, sales commissions, hourly wages, a anges in the volume of sales Some expenses cannot be neatly categorized as fixed or and others). e because they they experises that vary drectly with changes in the volume of saies or in the level of sales or production (electricity is one example) a particular production or sales volume and then climb as that Vumain ounstare into their lis hi level of volume is excoci the break-even point, an entrepreneur must separate these expenses u the scop components. A number of techniques are available (which are a good cost accounting system can provide the desired results 242 CREATING A SUCCESSFUL FINANCIAL PLAN Operating Ratios turnover ratio All Is Not Paradise in Eden's Garden: Part 2 Remember Joe and Kaitlin Eden, co-owners of Eden's Garden? Assume the role of Shelley Edison, their accountant. Tomorrow, you have scheduled a meeting with them to review their company's financial statements and to make recommendations about how they can improve their companys financial position. Use the work- sheet below to summarize the ratios you calculated earlier in this 9 days 17 drys Average payable period ratio t Net sales to total assets ratio Profitability Ratios Net profit on sales ratio Net profit to asset ratio Net profit to equity ratio Risk Managemens Association's Anssal Stotement Stadles Ratio Comparison 15.0% Eden's Garden Supply Garden Industry Median Liquidity Ratios Current ratio Quick ratio Leverage Ratios Debt ratio Debt to net worth ratio Times interest earned ratio chapter. Then compare them against the industry averages fon Risk Management Association Annual Statement 1. Analyze the comparisons you have made of Eden's Garden with those from the Risk Management Association 0.6 What "red flags" do you see 2. What might be causing the deviations you have observe 3. What recommendations can you make to the Edens to prove their company's financial performance in the futue 2.6 Break-Even Analysis Conduc a bresk-even analysis forAnother key component of every sound financial plan is a breakeven analysis. A pany's break-even point is the level of operation (typically expres tion quantity) at which it neither earns a profit nor incurs a a small company break-even point the level of operation (sales dollars revenue equals expenses-that is, the firm "breaks even." By analyzinga or production quantity) at which a entrepreneur can calculate the minimum leve company neither earns a profit nortion. These techniques can then be refined to project the sales ne incurs a loss loss. At this level of activity s and exp of activity required to keep a compui profit. Most potential lenders and investors expect entreprencurs to prepm addition to assist them in evaluating the earning potential of the new business. n simple, useful screening device for financial institutions, breakeven t hw npro cessarytoetrt l s e p addition so ils beieg analysis can also serve planning device for entrepreneurs. It can show an entrepreneur just planned business venture is likely to be. Calculating the Break-Even Point An entrepreneur can calculate a company's breakeven point by using as and vari formula. To begin the analysis, the entrepreneur must determine fixe Fixed expenses are those that do not vary with changes in the a simpie rab fixed expenses expenses that do not vary with ales of eriaeo e g., rent, depreciation expense, insurance, lease or loan paymentsof sales penses, on the other hand, vary directly with changes in the volume of s changes in the valume production af sales or variable expensesiments of both. These semi-variable expenses change, although not osts reae (e-g, raw material costs, sales commissions, hourly wages, a anges in the volume of sales Some expenses cannot be neatly categorized as fixed or and others). e because they they experises that vary drectly with changes in the volume of saies or in the level of sales or production (electricity is one example) a particular production or sales volume and then climb as that Vumain ounstare into their lis hi level of volume is excoci the break-even point, an entrepreneur must separate these expenses u the scop components. A number of techniques are available (which are a good cost accounting system can provide the desired results 242