Question

Problem #1 (Ratios): Tom's Fresh Market is a family owned produce and garden market servicing the northwest side of Chicago. Founded in 1980, Tom's provides the freshest produce by supporting local farm industry and buying direct. With over 100 years in combined grocery service experience among its management and staff, Tom's is committed to presenting its broad ethnic clientele with types of products and produce that are not available at typical food chain stores, IT sells wholesale to other stores, restaurants, and caterers who look for the same thing shoppers want farm-fresh healthy produce combined with variety that serves most ethnic groups. Tom's largest competitors are Whole Foods but their prices are much lower. Using the financial statements provided at the end), please answer the following questions: Income Statement (Millions of S) Balance Sheet (Millions of $) Assets Cash and securities Accounts receivable Inventories 2019 $2,145.00 $8,970.00 $12,480.00 Total current assets Net sales Operating costs except depreciation Depreciation Earnings before interest and taxes (EBIT) Less interest Earnings before taxes (EBT) Taxes Net income $23,595.00 $15,405.00 $39,000.00 2019 $58,500.00 $54,698.00 $1,025.00 $2,779.00 $829.00 $1,950.00 $682,00 $1,268.00 Net plant and equipment Total assets 500 Liabilities and Equity Accounts payable Accruals Notes payable Total current liabilities Long-term bonds Total liabilities Common stock Retained earnings Total common equity Total liabilities and equity $7,410.00 $4,290.00 $5,460.00 $17,160.00 $7,800.00 $24,960.00 $5,460.00 $8,580.00 $14,040.00 $39,000.00 Other data: Shares outstanding (millions) Common dividends (millions of $) Intrate on notes payable & L-T bonds Federal plus state income tax rate Year-end stock price $443.63 6.25% 35% $30.42 1. Tom's management values the following five ratios. Please calculate the following ratios nd show your work a. Current ratio b. Days sales outstanding (use a 365 day calendar year) c. Times interest earned (TIE) d. Return on equity (ROE) 2. Suppose that Tom's competitor is Whole Foods and its ratios are as follows. Write a brief essay recommending what Tom might consider doing to gain a competitive edge against Whole Foods a. Current ratio = 1.5x b. Days sales outstanding = 15 days c. Times interest earned = 4.0x d. Return on equity = 8%

Answer 1

I Ang - la) Current Ratio = total current arrets total current liability 23595.00 17160.00 3 1.375 (6) Day sole outstanding = Accound Receivable x Totul sales Day is Accounting Period (365 8970 x 365 58500 = 55.96 day – 56 days (6) Time Interest carred (TIE) = EBIT - If Interest Expense 2779 829.00 = 3.35 Net Income Shareholder's Equity 1268 x 100 14040.00 = 9.03 %. (d) Return on Equity ROE = x100

whole foody Tom's 1.375 1.50 56 Current Ratio Day Scales outstanding Times interest earned Return on Equity 15 4.0 3.35 9.03 By analysing the ratio's of whole foods 4 Tom. I have found that over all Tomis is perfooming very well its ROE is higher than whole foods & Current Ratio 4 TIE is approximately Some only that thin Ratio that need to improve DSO wall whole foods have 15 day while Tom have Dso of so they Should try to improve oso from 50 to around 30-35 day this will increase their profit margin which will increase ROE of company. they ghol should also try to in increase their capital Expenditure which increase their caparcity of production this can be achive by taking morre debt to By taking Debt it may increase the Interest Expense but by increasing capacity they will be as able to & move sales which will incrase their profit margin