Question
Ratios Definition Formula Liquidity Ratios Liquidity refers to the company's ability to pay its current liabilities as they fall due. These ratios give us an
Ratios
Definition
Formula
Liquidity Ratios
Liquidity refers to the company's ability to pay its current liabilities as they fall due.
These ratios give us an idea of the firm's ability to pay off debts that are maturing within a year or within the next operating cycle.
Current Ratio
It is measure of adequacy of working capital. It is a primary test of liquidity to meet current obligations from current assets.
CurrentAssets/CurrentLiabilities
Quick Ratio
It measures the number of times that the current liabilities could be paid with the available cash and near-cash assets.
Quick Assets = Cash + Current Receivables + Marketable Securities
Quick Assets/Current Liabilities
Operating Cycle
The operating cycle is the average period of time required for a business to make an initial outlay of cash to produce goods, sell the goods, and receive cash from customers in exchange for the goods.
This is useful for estimating the amount of working capital that a company will need in order to maintain or grow its business.
Average Age of Inventory + Average Age of Receivables
Leverage Ratios
Leverage refers to how much of company's resources are financed by debt and/or preferred equity, both of which require fixed payment of interests and dividends.
Also known as Solvency ratio.
Debt/Equity
Proportion of assets provided by creditors compared to that provided by owners.
Total Liabilities/Total Equity
Times Interest Earned
It determines the extent to which operations cover interest expense.
Earnings before Income Tax/Interest Expense
Asset Management Ratios
These ratios give us an idea of how efficiently the firm is using its assets.
Inventory Turnover
It measures the number of times that the inventory is replaced during the period.
Cost of Goods Sold/Average Merchandise Inventory
Receivables Turnover
It measures the number of times receivables are recorded and collected during the period.
Net Credit Sales/Average Receivables
Fixed Asset Turnover
Test roughly the efficiency of management in keeping fixed assets employed.
Net Sales/Net Fixed Assets
Profitability Ratios
measures the ability of the business to generate profit in relation to sales, investments, assets, equities, or ordinary shares outstanding
Gross Profit Margin
It measures the gross profit percentage on sales to recover operating expenses.
Gross Profit/Net Sales
Operating Profit Margin
It measures the profit generated after consideration of operating costs.
Operating Profit/Net Sales
Return on Assets
Efficiency with which assets are used to operate the business
Income/Average Assets
DuPont Analysis
DuPont Equation is the formula that shows that the rate of return on equity can be found as the product of profit margin, total asset turnover, and the equity multiplier
It shows the relationships among asset management, financial leverage management and profitability ratios.
Net Profit Margin
It is the amount of profit that the company earns from each peso of sales.
Net Profit/Net Sales
Total Asset Turnover
It is the productivity measure that reflects the volume of sales that a company generates from each peso invested in assets.
Net Sales/Average Total Assets
Equity Multiplier
also called as financial leverage multiplier.
The equity multiplier is a risk indicator that measures the portion of a company's assets that is financed by stockholder's equity rather than by debt.
Total Equity/Shareholder's equity
1+ (Debt/Equity)
1/Equity Ratio
1/(1-Debt Ratio)
Return on Equity
Measures the amount earned on the owners' or stockholders' investment.
Net Income/Average Equity
ROE= Profit Margin x Asset Turnover x Equity Multiplier.
| Ratios | Definition | Formula |
| Liquidity Ratios | Liquidity refers to the company's ability to pay its current liabilities as they fall due. These ratios give us an idea of the firm's ability to pay off debts that are maturing within a year or within the next operating cycle. | |
| Current Ratio | It is measure of adequacy of working capital. It is a primary test of liquidity to meet current obligations from current assets. | CurrentAssets/CurrentLiabilities |
| Quick Ratio | It measures the number of times that the current liabilities could be paid with the available cash and near-cash assets. Quick Assets = Cash + Current Receivables + Marketable Securities | Quick Assets/Current Liabilities |
| Operating Cycle | The operating cycle is the average period of time required for a business to make an initial outlay of cash to produce goods, sell the goods, and receive cash from customers in exchange for the goods. This is useful for estimating the amount of working capital that a company will need in order to maintain or grow its business. | Average Age of Inventory + Average Age of Receivables |
| Leverage Ratios | Leverage refers to how much of company's resources are financed by debt and/or preferred equity, both of which require fixed payment of interests and dividends. Also known as Solvency ratio. | |
| Debt/Equity | Proportion of assets provided by creditors compared to that provided by owners. | Total Liabilities/Total Equity |
| Times Interest Earned | It determines the extent to which operations cover interest expense. | Earnings before Income Tax/Interest Expense |
| Asset Management Ratios | These ratios give us an idea of how efficiently the firm is using its assets. | |
| Inventory Turnover | It measures the number of times that the inventory is replaced during the period. | Cost of Goods Sold/Average Merchandise Inventory |
| Receivables Turnover | It measures the number of times receivables are recorded and collected during the period. | Net Credit Sales/Average Receivables |
| Fixed Asset Turnover | Test roughly the efficiency of management in keeping fixed assets employed. | Net Sales/Net Fixed Assets |
| Profitability Ratios | measures the ability of the business to generate profit in relation to sales, investments, assets, equities, or ordinary shares outstanding | |
| Gross Profit Margin | It measures the gross profit percentage on sales to recover operating expenses. | Gross Profit/Net Sales |
| Operating Profit Margin | It measures the profit generated after consideration of operating costs. | Operating Profit/Net Sales |
| Return on Assets | Efficiency with which assets are used to operate the business | Income/Average Assets |
| DuPont Analysis | DuPont Equation is the formula that shows that the rate of return on equity can be found as the product of profit margin, total asset turnover, and the equity multiplier It shows the relationships among asset management, financial leverage management and profitability ratios. | |
| Net Profit Margin | It is the amount of profit that the company earns from each peso of sales. | Net Profit/Net Sales |
| Total Asset Turnover | It is the productivity measure that reflects the volume of sales that a company generates from each peso invested in assets. | Net Sales/Average Total Assets |
| Equity Multiplier | also called as financial leverage multiplier. The equity multiplier is a risk indicator that measures the portion of a company's assets that is financed by stockholder's equity rather than by debt. | Total Equity/Shareholder's equity 1+ (Debt/Equity) 1/Equity Ratio 1/(1-Debt Ratio) |
| Return on Equity | Measures the amount earned on the owners' or stockholders' investment. | Net Income/Average Equity |
| ROE= Profit Margin x Asset Turnover x Equity Multiplier. |
Please answer A-O based on the given information from the following Statements given: The equations are listed above. Use the information from Income Statement, Balance Sheet, and Cash Flows statement to complete the ratios. Please be detailed in your description thank you in advance.
Please answer A-O based on the given information from the following Statements given: The equations are listed above. Use the information from Income Statement, Balance Sheet, and Cash Flows statement to complete the ratios. Please be detailed in your description thank you in advance.
Please answer A-O based on the given information from the following Statements given: The equations are listed above. Use the information from Income Statement, Balance Sheet, and Cash Flows statement to complete the ratios. Please be detailed in your description thank you in advance.
Please answer A-O based on the given information from the following Statements given: The equations are listed above. Use the information from Income Statement, Balance Sheet, and Cash Flows statement to complete the ratios. Please be detailed in your description thank you in advance.
| Liquidity Ratios |
| A: Current Ratio |
| B: Quick Ratio |
| C: Operating Cycle |
| Leverage Ratios |
| D: Debt/Equity |
| E: Times Interest Earned |
| Asset Management Ratios |
| F: Inventory Turnover |
| G: Receivables Turnover |
| H: Fixed Asset Turnover |
| Profitability Ratios |
| I: Gross Profit Margin |
| J: Operating Profit Margin |
| K: Return on Assets |
| DuPont Analysis |
| L: Net Profit Margin |
| M: Total Asset Turnover |
| N: Equity Multiplier |
| O: Return on Equity |
| Cash Flow Statement | Date Ending | Date Ending | Date Ending | Date Ending | Date Ending |
| 2022 | 2023 | 2024 | 2025 | 2026 | |
| Cash Flows From (For) Operations | |||||
| Net Income | $(94,585) | $38,313 | $84,538 | $182,837 | $220,088 |
| Depreciation | 2,848 | 4,880 | 3,485 | 2,489 | 1,780 |
| Changes in Current Assets | |||||
| Accounts Receivable | (244,281) | (65,897) | (68,920) | (82,541) | (75,541) |
| Inventory | (44,540) | (78,631) | 3,681 | (42,006) | 42,942 |
| Changes in Current Liabilities | |||||
| Accounts Payable | - | - | - | - | - |
| Accrued Salaries and Wages | 73,449 | (73,449) | - | - | - |
| Accrued Payroll Taxes and Benefits | - | - | - | - | - |
| Cash From (For) Operating Activities | $(307,109) | $(174,783) | $22,785 | $60,780 | $189,269 |
| Cash Flow (For) From Investing Activities | |||||
| Fixed Asset Purchases | (69,142) | 27,142 | - | - | - |
| Short Term Investments | - | - | - | - | - |
| Long Term Investments | - | - | - | - | - |
| Net Cash Flows (For) From Investing | $(69,142) | $27,142 | $- | $- | $- |
| Cash Flow From (For) Financing Activities | |||||
| Issuance of Common Stock | $- | $- | $- | $- | $- |
| Short Term Debt Borrowings | - | - | - | ||
| Long Term Debt Borrowings | - | - | - | - | - |
| Short Term Debt Payments | - | - | - | - | |
| Long Term Debt Payments | - | - | - | - | - |
| Dividends Paid to Stockholders | - | - | - | - | - |
| Cash Flows From (For) Financing | $- | $- | $- | $- | $- |
| Net Change in Cash | $(376,251) | $(147,641) | $22,785 | $60,780 | $189,269 |
| Beginning Cash Balance | $- | $(376,251) | $(523,892) | $(501,107) | $(440,327) |
| Net Change in Cash | $(376,251) | $(147,641) | $22,785 | $60,780 | $189,269 |
| Ending Cash Balance | $(376,251) | $(523,892) | $(501,107) | $(440,327) | $(251,059) |
| Balance Sheet | As of Inception | Date Ending | Date Ending | Date Ending | Date Ending | Date Ending | |||||
| Date | 2022 | 2023 | 2024 | 2025 | 2026 | ||||||
| ASSETS | |||||||||||
| 44540.087 | |||||||||||
| Current Assets | |||||||||||
| Cash and Cash Equivalents | $188,907 | $732,842.25 | $930,534.00 | $1,137,292.50 | $1,384,914.75 | $1,611,537.75 | |||||
| Accounts Receivable | - | $244,280.75 | $310,178.00 | $379,097.50 | $461,638 | $537,179.25 | |||||
| Inventory | - | 44,540 | 123,171 | 119,490 | 161,495 | 118,553 | |||||
| Short Term Investments | - | - | |||||||||
| Total Current Assets | $188,907 | $1,021,663 | $1,363,883 | $1,635,880 | $2,008,048 | $2,267,270 | |||||
| Fixed (Long-Term) Assets | |||||||||||
| Machinery and Equipment | $0.00 | $7,213.96 | - | - | - | - | |||||
| Office Equipment | $0.00 | $19,928.36 | - | - | - | - | |||||
| Rent Expense | $0 | $42,000.00 | $42,000.00 | $42,000.00 | $42,000.00 | $42,000.00 | |||||
| Total Gross Fixed Assets | $- | $69,142.32 | $42,000 | $42,000 | $42,000 | $42,000 | |||||
| Less: Accumulated Depreciation | - | -$3,878.64 | (6,647) | (4,747) | (3,390) | (2,424) | |||||
| Net Fixed Assets | $- | $65,264 | $35,353 | $37,253 | $38,610 | $39,576 | |||||
| Other Long Term Assets | |||||||||||
| Long Term Investments | - | - | - | ||||||||
| Intangibles, Net of Amortization | - | - | - | - | - | - | |||||
| Total Other Long Term Assets | $- | $- | $- | $- | $- | $- | |||||
| Total Assets | $188,907 | $1,086,927 | $1,399,235 | $1,673,132 | $2,046,658 | $2,306,846 | |||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Liabilities | |||||||||||
| Current Liabilities | |||||||||||
| Accounts Payable | - | - | |||||||||
| Accrued Salaries and Wages | - | 73,449 | |||||||||
| Accrued Payroll Taxes and Benefits | - | ||||||||||
| Notes Payable | - | 80,960 | |||||||||
| Current Maturity of LT Debt | |||||||||||
| Total Current Liabilities | $154,409 | $- | $- | $- | $- | ||||||
| Long-Term Liabilities | |||||||||||
| LT Debt Less Current Maturities1 | $- | $- | $- | $- | $- | ||||||
| Total Liabilities | $- | $154,409 | $- | $- | $- | $- | |||||
| STOCKHOLDER'S EQUITY | |||||||||||
| Common Stock | - | ||||||||||
| Retained Earnings | 188,907 | $921,749.25 | |||||||||
| Total Stockholders' Equity | $188,907 | $921,749 | $- | $- | $- | $- | |||||
| $109,585 | |||||||||||
| Total Liabilities and Stockholders' Equity | $188,907 | $1,076,158 | $- | $- | $- | $- |
| Income Statement | Date Ending | Date Ending | Date Ending | Date Ending | Date Ending | ||||
| 2022 | 2023 | 2024 | 2025 | 2026 | |||||
| Sales Revenue | $977,123 | $1,240,712 | $1,516,390 | $1,846,553 | $2,148,717 | ||||
| COGS | $295,353.29 | $376,883.94 | $464,457.58 | $548,492.58 | $644,133.61 | ||||
| Gross Profit | $681,770 | $863,828 | $1,051,932 | $1,298,060 | $1,504,583 | ||||
| General and Administrative Expenses | |||||||||
| Salaries and Wages | $309,000.00 | $318,270.00 | $358,318.10 | $369,067.64 | $410,639.67 | ||||
| Payroll Tax Expenses | |||||||||
| Employee Benefits and Retirement | $131,692.00 | $131,692.00 | $149,189.00 | $149,189.00 | $166,686.00 | ||||
| General Insurance Expense | $30,256.00 | $31,617.52 | $33,040.31 | $34,527.12 | $36,080.84 | ||||
| Depreciation Expense | $2,847.76 | $4,880.46 | $3,485.47 | $2,489.05 | $1,779.60 | ||||
| Rent Expense | $42,000.00 | $42,000.00 | $42,000.00 | $42,000.00 | $42,000.00 | ||||
| Advertising and Promotion Expense | $97,712.30 | $124,071.20 | $151,639.00 | $184,655.30 | $214,871.70 | ||||
| Taxes & Licenses | $1,549.00 | $600.00 | $600.00 | $600.00 | $600.00 | ||||
| Office Expense (MOH) (Desks, chairs, etc.) | $19,928.36 | ||||||||
| Utilities expense | $10,168.21 | $10,168.21 | $10,168.21 | $10,168.21 | $10,168.21 | ||||
| Equipment Purchase | $7,213.96 | $0.00 | $0.00 | $0.00 | $0.00 | ||||
| Outbound Transportation | $123,986.94 | $157,430.41 | $192,415.58 | $234,309.85 | $272,646.79 | ||||
| Other - | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | ||||
| Other - | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | ||||
| Other - | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | ||||
| Other - | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | ||||
| Total General & Administrative Expenses | $776,355 | $820,730 | $940,856 | $1,027,006 | $1,155,473 | ||||
| Earnings Before Interest and Taxes | $(94,585) | $43,098 | $111,077 | $271,054 | $349,111 | ||||
| Interest Expense14 | |||||||||
| Earnings Before Taxes | $(94,585) | $43,098 | $111,077 | $271,054 | $349,111 | ||||
| Income Tax Expense | - | 4,785 | 26,539 | 88,217 | 129,023 | ||||
| Net Income (Loss) | $(94,585) | $38,313 | $84,538 | $182,837 | $220,088 | ||||
| Statement of Retained Earnings (NOT REQUIRED FOR DRAFT OR BUSINESS PLAN) | |||||||||
| Beginning Balance of Retained Earnings | $- | $(94,585) | $(56,272) | $28,266 | |||||
| Net Income (Loss) | (94,585) | 38,313 | 84,538 | 182,837 | 220,088 | ||||
| Dividends to Stockholders | - | - | - | ||||||
| Ending Retained Earnings | $(94,585) | $(56,272) | $28,266 | $211,103 | $220,088 |
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Managerial Accounting
Authors: John J Wild, Ken W. Shaw, Barbara Chiappetta
7th edition
1260482936, 978-1260482935
