The following is the income statement for the year ended October 31, 2019 and the balance sheet as of October 31, 2019 for M & K Design Limited. Also included is some additional information to assist you in your calculations and analysis: M & K Design Limited Income Statement For Year Ended October 31, 2019 Sales Cost of goods sold Depreciation expense Operating expenses $1,700,000 884,000 816,000 65,000 527,700 223,300 8,000 215,300 30,000 $185,300 Interest expense Income before tax Income tax expense M & K Design Limited Balance Sheet October 31, 2019 Assets Cash Accounts receivable Inventory $22,000 122,000 96,000 240,000 Furniture and Equipment 700,000 Accumulated depreciation - furniture and equipment (300,000) Long term investment 125,500 525,500 $765,500 Liabilities & Shareholder's Equity Liabilities Accounts payable Salary payable Income tax payable $ 158,000 12,000 30,000 200,000 75,000 275,000 Bank loan (long-term) Shareholder's Equity Common shares Retained earnings 50,000 440,500 490,500 $765,500 Selected data from October 31, 2018 financial statements: Total assets $683,500 Accounts receivable $107,500 Inventory $ 60,000 Accounts payable $175,000 Required: A. Calculate 10 ratios (see page 7) to help you analyze M & K Design Limited. Some limited industry averages & comparative ratios are provided on the next page. B. Using at least 4 ratios calculated above to answer the following: M&K Design has come to you looking for a loan of $40,000 to be repaid over 5 years. Would you be willing to loan them the money? Provide an explanation for your answer. The following information is available for: M&K Design 2018 47.2% 9.5% Industry averages - 2019 50.0% 9% .25 .40 1.5 2.1 .75 Gross profit margin ratio Return on sales (net profit margin) Rate of return on assets Debt ratio Current ratio Asset turnover Quick Ratio .24 .48 1.0 2.0 .67 1. Gross profit margin ratio 2. Return on sales (Net profit margin ratio) 3. Rate of return on assets ratio 4. Asset turnover ratio 5 &6. Receivables turnover ratio and days sales outstanding 7 & 8. Inventory turnover ratio and days inventory outstanding Gross profit Net sales Net income Net sales Net income Average total assets Net sales Average total assets Net sales Average accounts receivable and 365 Accounts receivable turnover Cost of goods sold Average inventory and 365 Inventory turnover ratio Cost of goods sold Average accounts payable and 365 Accounts payable turnover Days inventory outstanding +days sales outstanding - days payables outstanding Current assets Current liabilities Cash + short-term investments +_ current receivables Current liabilities Total liabilities Total assets Income from operations Interest expense 9 & 10. Payables turnover and days payables outstanding 11. Cash conversion cycle 12. Current ratio 13. Quick ratio 14. Debt ratio 15. Times interest earned The following is the income statement for the year ended October 31, 2019 and the balance sheet as of October 31, 2019 for M & K Design Limited. Also included is some additional information to assist you in your calculations and analysis: M & K Design Limited Income Statement For Year Ended October 31, 2019 Sales Cost of goods sold Depreciation expense Operating expenses $1,700,000 884,000 816,000 65,000 527,700 223,300 8,000 215,300 30,000 $185,300 Interest expense Income before tax Income tax expense M & K Design Limited Balance Sheet October 31, 2019 Assets Cash Accounts receivable Inventory $22,000 122,000 96,000 240,000 Furniture and Equipment 700,000 Accumulated depreciation - furniture and equipment (300,000) Long term investment 125,500 525,500 $765,500 Liabilities & Shareholder's Equity Liabilities Accounts payable Salary payable Income tax payable $ 158,000 12,000 30,000 200,000 75,000 275,000 Bank loan (long-term) Shareholder's Equity Common shares Retained earnings 50,000 440,500 490,500 $765,500 Selected data from October 31, 2018 financial statements: Total assets $683,500 Accounts receivable $107,500 Inventory $ 60,000 Accounts payable $175,000 Required: A. Calculate 10 ratios (see page 7) to help you analyze M & K Design Limited. Some limited industry averages & comparative ratios are provided on the next page. B. Using at least 4 ratios calculated above to answer the following: M&K Design has come to you looking for a loan of $40,000 to be repaid over 5 years. Would you be willing to loan them the money? Provide an explanation for your answer. The following information is available for: M&K Design 2018 47.2% 9.5% Industry averages - 2019 50.0% 9% .25 .40 1.5 2.1 .75 Gross profit margin ratio Return on sales (net profit margin) Rate of return on assets Debt ratio Current ratio Asset turnover Quick Ratio .24 .48 1.0 2.0 .67 1. Gross profit margin ratio 2. Return on sales (Net profit margin ratio) 3. Rate of return on assets ratio 4. Asset turnover ratio 5 &6. Receivables turnover ratio and days sales outstanding 7 & 8. Inventory turnover ratio and days inventory outstanding Gross profit Net sales Net income Net sales Net income Average total assets Net sales Average total assets Net sales Average accounts receivable and 365 Accounts receivable turnover Cost of goods sold Average inventory and 365 Inventory turnover ratio Cost of goods sold Average accounts payable and 365 Accounts payable turnover Days inventory outstanding +days sales outstanding - days payables outstanding Current assets Current liabilities Cash + short-term investments +_ current receivables Current liabilities Total liabilities Total assets Income from operations Interest expense 9 & 10. Payables turnover and days payables outstanding 11. Cash conversion cycle 12. Current ratio 13. Quick ratio 14. Debt ratio 15. Times interest earned