SP 13 Kate's Cards

Kate is very pleased with the results of the first year of operations for Kate's Cards. She ended the year on a high note, with the company's reputation for producing quality cards leading to more business than she can currently manage. Kate is considering expanding and bringing in several employees. In order to expand, she will need to find a larger location and also purchase more equipment. All this means additional financing. Kate has asked you to look at her year-end financial statements as if you were a banker considering giving Kate a loan. Comment on your findings and provide calculations to support your comments.

Kate's Cards-Income Statement-Year Ended August 31, 2019

Sales Revenue...............................................................$185,000

Cost of Goods Sold........................................................$106,000

Gross Profit....................................................................$79,000

Operating Expenses

Wages............................................................................$18,000

Consulting......................................................................$11,850

Insurance.......................................................................$1,200

Utilities............................................................................$2,400

Rent................................................................................$14,400

Depreciation...................................................................$3,250

Total Operating Expenses..............................................$51,100

Income from Operations.................................................$27,900

Interest Expense............................................................$900

Income before income tax..............................................$27,000

Income tax expense.......................................................$5,400

Net Income.....................................................................$21,600

Kate's Cards - Balance Sheet - August 31, 2019

Assets

Current Assets

Cash..............................................................................$17,400

Accounts Receivable.....................................................$11,000

Inventory........................................................................$16,000

Prepaid Insurance.........................................................$1,000

Total Current Assets......................................................$45,400

Equipment.....................................................................$17,500

Accumulated Depreciation............................................$3,250

Total Assets..................................................................$59,650

Liabilities

Current Liabilities

Accounts Payable........................................................$6,200

Unearned Revenue......................................................$1,250

Other Current Liabilities...............................................$1,900

Total Current Liabilities................................................$9,350

Note Payable...............................................................$15,000

Total Liabilities.............................................................$24,350

Stockholder's Equity

Common Stock............................................................$500

Additional Paid in Capitol............................................$9,500

Preferred Stock...........................................................$5,000

Retained Earnings......................................................$20,300

Total Stockholder's Equity...........................................$35,300

Total Liabilities and Stockholder's Equity....................$59,650

Kate's Cards - Statement of Cash Flows - Year Ended August 31, 2019

Cash flow from operating activities

Net Income...................................................................$21,600

Add Depreciation..........................................................$3,250

Increase in accounts receivable..................................($11,000)

Increase in Inventory..................................................($16,000)

Increase in prepaid.....................................................($1,000)

Increase in accounts payable......................................$6,200

Increase in unearned revenue....................................$1,250

Increase in other current liabilities............................. $1,900

Cash provided by operating activities........................ $6,200

Cash flow from investing activities

Purchase of Equipment.............................................($17,500)

Cash used by investing activities..............................($17,500)

Cash flow from financing activities

Proceeds from bank note...........................................$15,000

Issuance of common stock........................................$10,000

Issuance of preferred stock.......................................$5,000

Cash dividends.........................................................($1,300)**

Cash provided by financing activities........................$28,700

Net increase in cash..................................................$17,400

Cash at the beginning of the year..............................$0

Cash at the end of the year........................................$17,400

**Kate issued cash dividends on both the common stock and the preferred stock. There are 50 preferred shares outstanding and 500 common shares outstanding. The dividends that Kate paid were $6 per share on the preferred shares and $2 per share on the common shares.

Please help with formula and ratio for each of the below

Item Formula Ratio

1 Gross profit percentage

2 Return on Sales

3 Asset turnover

4 Return on assets

5 Return on common stockholder's equity

6 Current Ratio

7 Quick Ratio

8 Operating cash flow to current liabilities ratio

9 Accounts receivable turnover

10 Average collection period

11 Inventory turnover

12 Days sales in inventory

13 Debt to equity ratio

14 Times interest earned ratio

15 Operating cash flow to capitol expenditures ratio

Analysis: