Video transcript: >> Complete the balance sheet and sales information using the following financial data. We have the total asset turnover is equal to 1.5 times. That is, sales divided by total assets equals 1.5. Days sales outstanding equals 36.5 days, assuming a 365-day year. Accounts receivable divided by average daily sales, that is, sales divided by 365, this is equal to 36.5. The inventory turnover ratio equals 5. That is, sales divided by inventories is equal to 5. We have a fixed asset turnover of 3. Sales divided by net fixed assets is equal to 3. The current ratio is equal to 2. That is, current assets divided by current liabilities is equal to 2. The gross profit margin on sales is equal to 25%. That is, sales minus cost of goods sold divided by sales is equal to .25. So, looking at the balance sheet we have total assets, and we know total liabilities and equity should be equal to total assets. Therefore, total liabilities and equity would be equal to 300,000, which is what we have for total assets. Let's start with the total asset turnover ratio. We have the total assets amount of 300,000. We have the total asset turnover ratio of 1.5. That is, sales are equal to 1.5 times the total assets. Therefore, that is 1.5 times 300,000. That gives us a sales amount of 450,000. Sales, 450,000. Next we look at the days sales outstanding ratio. We have the days sales outstanding equal to 36.5. We already calculated the annual sales number, so we can calculate the average daily sales. Therefore, we can calculate accounts receivable. Accounts receivable are equal to 36.5, the days sales outstanding number, multiplied by the average daily sales, which would be 450,000 divided by 365. That is equal to 45,000. Accounts receivable, 45,000. Next, the inventory turnover ratio. We have the sales amount. We have the inventory turnover ratio, so we can figure out the inventories amount. Sales divided by inventories equals 5. That is, sales are equal to 5 times the inventories. In other words, inventories are equal to sales divided by 5. Sales, 450,000, divide that by 5, the inventory turnover ratio, and we get our inventories balance of 90,000. Next we look at the fixed asset turnover ratio, and that tells us that sales are equal to 3 times the fixed assets. In other words, fixed assets are equal to 1/3 of the sales amount. So that is 450,000 sales divided by the fixed asset turnover ratio of 3. Therefore, fixed assets are equal to 150,000. Now, if we add up accounts receivable, inventories, and net fixed assets, that's 45,000 plus 90,000 plus 150,000, we get a total of 285,000. Well, given that total assets are 300,000, the difference of $15,000, well, that is the cash balance. Next we look at the current ratio, which is equal to 2. That tells us that our current assets are 2 times our current liabilities, or that our current liabilities are equal to 1/2 of our current assets. The current assets are the sum of cash accounts receivable and inventories. So, we have a current assets balance of 150,000. Therefore, current liabilities would be 150,000 divided by 2, which is 75,000. Now, looking at the right-hand side of the balance sheet, current liabilities 75,000, long-term debt, 60,000, retained earnings, 97,500. These three add up to 232,500. Well, the total liabilities and equity are 300,000. Therefore, the difference of 67,500, that is the common stock balance. The only thing we're left with is the cost of goods sold. Well, the gross profit margin on sales is 25%, multiplying both sides by sales. Left-hand side we have sales minus cost of goods sold, right-hand side we have 25% of sales. So left-hand side we can write sales minus 25% of sales. Right-hand side we have cost of goods sold. That is, cost of goods sold will be equal to .75 times sales. That is, the cost of goods sold will be 75% of sales. If the gross profit margin on sales is 25%, that tell us that 75% of sales is the cost of goods sold number. So, this will be 75% of 450,000, which is equal to .75 times 450,000. That is, 3/4 of the sales number is cost of goods sold, which is 337,500. So that's our cost of goods sold, 337,500.

3. Balance Sheet Analysis (Formula Approach) Step 1: Quick Take: Balance Sheet Analysis The balance sheet of a company shows a firm's assets and liabilities (and stockholders' equity). In other words, at any given point in time, the balance sheet illustrates a firm's overall financial position. A typical balance sheet shows assets owned by the company on the left, along with the firm's liabilities and equity on the right. The assets are usually organized into two major types: currents assets and fixed (or long- term) assets. Current assets include cash, cash equivalents, accounts receivable, and inventory. These are assets that are expected to be converted to cash in short order. Fixed assets include net plant, property, and equipment, along with other long-term assets. Similarly, the right side of the balance sheet is usually organized into two major categories: liabilities (money owed by the company) and stockholders' equity. Current liabilities are claims that are due within one year. These types of liabilities typically consist of things like accounts payable, accruals, notes payable to banks. Long-term debt can include bonds with maturity dates far into the future. Stockholders' equity can be written as either the sum of paid-in capital and retained earnings, or the difference between total assets and total liabilities. The various financial ratios commonly used to analyze the financial strength of a company can also be used to relate the various entries on the balance sheet together. For example, the current ratio is calculated by dividing current assets by current liabilities. Thus, in theory, if you knew the current ratio and the value of current liabilities, you could solve for the value of current assets by multiplying the current asset ratio by current liabilities. Additionally financial ratios can also be used to related items from the balance sheet to items in the income statement, such as sales or cost of goods sold. For example, the total assets turnover ratio can be calculated as sales (from the income statement) divided by total assets (from the balance sheet). In theory, if you know the total assets turnover ratio as well as the value of total assets, you can solve for sales by multiplying the total assets turnover ratio by total assets. True or False: Liabilities generally appear on the left side of the balance sheet. True False Cash would generally appear under on the balance sheet. accounts payable Step 2: Learn: Balance Sheet Anals current liabilities The items on the balance sheet and fixed assets ements are related in specific ways. current assets Watch the following video for an example, then answer the questions that follow. Suppose that Royval Inc has the following data: 1.25 36.5 days 5 Total assets turnover Days sales outstanding Inventory turnover ratio Fixed assets turnover Current ratio Gross profit margin on sales: 4 2 30.00% Also suppose that Royval Inc has the following balance sheet: Balance Sheet Assets Liabilities Current Liabilities Cash Accounts receivable $135,000 Inventories Long-term debt Common stock Retained earnings Fixed assets $130,000 Total assets $500,000 Total Liabilities and equity Cost of goods sold Sales According to the video, total assets turnover is equal to Given the value of total assets turnover, along with the level of total assets given, this means that Royval's sales must be According to the video, DSO (days sales outstanding) can be written as . Given the value of DSO, along with the level of sales you already calculated, this means that Royval's recevables must be According to the video, the inventory ratio can be written as equal to Given the value of the inventory ratio, along with the level of sales you already calculated, this means that Royval's inventories must be This means that According to the video, the fixed asset turnover ratio can be written as Royval has fixed assets of According to the video, cash can be written as total assets minus fixed assets, inventories, and accounts receivable. According to the video, the value of total assets is equal to the value of total liabilities and equity. In the video, total liabilities and equity is equal to Given the level of total liabilities and equity, as well as retained earnings, current liabilities and the level of long-term debt, solving for Royval's common stock yields According to the video, gross profit margin can be written as Given the gross profit margin and the level of sales you have already calculated, this means that Royval has a cost of goods sold of Step 3: Practice: Balance Sheet Analysis Now it's time for you to practice what you've learned. Suppose that Royval Inc has the following data: 1.25 36.5 days 5 Total assets turnover Days sales outstanding Inventory turnover ratio Fixed assets turnover Current ratio Gross profit margin on sales: 4 2 30.00% Also suppose that Royval Inc has the following balance sheet: Balance Sheet Assets Liabilities Current Liabilities Cash Accounts receivable $121,500 Long-term debt Common stock Inventories Fixed assets Retained earnings $117,000 Total assets $450,000 Total Liabilities and equity Sales Cost of goods sold Use the formulas you learned about in the previous stage of the problem to answer the following questions. Given the value of total assets turnover, along with the level of total assets given, this means that Royval's sales must be Given the value of DSO, along with the level Use the formulas you learned about in the previous stage of the problem to answer the following questions. Given the value of total assets turnover, along with the level of total assets given, this means that Royval's sales must be . Given the value of DSO, along with the level of sales you already calculated, this means that Royval's receivables must be Given the value of the inventory ratio, along with the level of sales you already calculated, this means that Royval's inventories must be 2. Given the value of the fixed assets turnover ratio, as well as the level of sales, this means that Royval's fixed assets must be equal to Solving for cash yields a value of cash of for Royval. Given the current ratio of 2 and values of cash, accounts receivable, and inventories, the level of current liabilities must be Given the level of retained earnings, current liabilities, and long-term debt, along with the relationship between total assets and total liabilities and equity, this means that Royval's common stock must be Given the gross profit margin and the level of sales you have already calculated, this means that Royval has a cost of goods sold of 3. Balance Sheet Analysis (Formula Approach) Step 1: Quick Take: Balance Sheet Analysis The balance sheet of a company shows a firm's assets and liabilities (and stockholders' equity). In other words, at any given point in time, the balance sheet illustrates a firm's overall financial position. A typical balance sheet shows assets owned by the company on the left, along with the firm's liabilities and equity on the right. The assets are usually organized into two major types: currents assets and fixed (or long- term) assets. Current assets include cash, cash equivalents, accounts receivable, and inventory. These are assets that are expected to be converted to cash in short order. Fixed assets include net plant, property, and equipment, along with other long-term assets. Similarly, the right side of the balance sheet is usually organized into two major categories: liabilities (money owed by the company) and stockholders' equity. Current liabilities are claims that are due within one year. These types of liabilities typically consist of things like accounts payable, accruals, notes payable to banks. Long-term debt can include bonds with maturity dates far into the future. Stockholders' equity can be written as either the sum of paid-in capital and retained earnings, or the difference between total assets and total liabilities. The various financial ratios commonly used to analyze the financial strength of a company can also be used to relate the various entries on the balance sheet together. For example, the current ratio is calculated by dividing current assets by current liabilities. Thus, in theory, if you knew the current ratio and the value of current liabilities, you could solve for the value of current assets by multiplying the current asset ratio by current liabilities. Additionally financial ratios can also be used to related items from the balance sheet to items in the income statement, such as sales or cost of goods sold. For example, the total assets turnover ratio can be calculated as sales (from the income statement) divided by total assets (from the balance sheet). In theory, if you know the total assets turnover ratio as well as the value of total assets, you can solve for sales by multiplying the total assets turnover ratio by total assets. True or False: Liabilities generally appear on the left side of the balance sheet. True False Cash would generally appear under on the balance sheet. accounts payable Step 2: Learn: Balance Sheet Anals current liabilities The items on the balance sheet and fixed assets ements are related in specific ways. current assets Watch the following video for an example, then answer the questions that follow. Suppose that Royval Inc has the following data: 1.25 36.5 days 5 Total assets turnover Days sales outstanding Inventory turnover ratio Fixed assets turnover Current ratio Gross profit margin on sales: 4 2 30.00% Also suppose that Royval Inc has the following balance sheet: Balance Sheet Assets Liabilities Current Liabilities Cash Accounts receivable $135,000 Inventories Long-term debt Common stock Retained earnings Fixed assets $130,000 Total assets $500,000 Total Liabilities and equity Cost of goods sold Sales According to the video, total assets turnover is equal to Given the value of total assets turnover, along with the level of total assets given, this means that Royval's sales must be According to the video, DSO (days sales outstanding) can be written as . Given the value of DSO, along with the level of sales you already calculated, this means that Royval's recevables must be According to the video, the inventory ratio can be written as equal to Given the value of the inventory ratio, along with the level of sales you already calculated, this means that Royval's inventories must be This means that According to the video, the fixed asset turnover ratio can be written as Royval has fixed assets of According to the video, cash can be written as total assets minus fixed assets, inventories, and accounts receivable. According to the video, the value of total assets is equal to the value of total liabilities and equity. In the video, total liabilities and equity is equal to Given the level of total liabilities and equity, as well as retained earnings, current liabilities and the level of long-term debt, solving for Royval's common stock yields According to the video, gross profit margin can be written as Given the gross profit margin and the level of sales you have already calculated, this means that Royval has a cost of goods sold of Step 3: Practice: Balance Sheet Analysis Now it's time for you to practice what you've learned. Suppose that Royval Inc has the following data: 1.25 36.5 days 5 Total assets turnover Days sales outstanding Inventory turnover ratio Fixed assets turnover Current ratio Gross profit margin on sales: 4 2 30.00% Also suppose that Royval Inc has the following balance sheet: Balance Sheet Assets Liabilities Current Liabilities Cash Accounts receivable $121,500 Long-term debt Common stock Inventories Fixed assets Retained earnings $117,000 Total assets $450,000 Total Liabilities and equity Sales Cost of goods sold Use the formulas you learned about in the previous stage of the problem to answer the following questions. Given the value of total assets turnover, along with the level of total assets given, this means that Royval's sales must be Given the value of DSO, along with the level Use the formulas you learned about in the previous stage of the problem to answer the following questions. Given the value of total assets turnover, along with the level of total assets given, this means that Royval's sales must be . Given the value of DSO, along with the level of sales you already calculated, this means that Royval's receivables must be Given the value of the inventory ratio, along with the level of sales you already calculated, this means that Royval's inventories must be 2. Given the value of the fixed assets turnover ratio, as well as the level of sales, this means that Royval's fixed assets must be equal to Solving for cash yields a value of cash of for Royval. Given the current ratio of 2 and values of cash, accounts receivable, and inventories, the level of current liabilities must be Given the level of retained earnings, current liabilities, and long-term debt, along with the relationship between total assets and total liabilities and equity, this means that Royval's common stock must be Given the gross profit margin and the level of sales you have already calculated, this means that Royval has a cost of goods sold of