Question

The financial statements of Flowers Co. appear below: Flowers Co. Comparative Balance Sheets December 31, 2018 - 2019 Assets Caela Short-term investments Accounts receivable (net) Inventory Property, plant and equipment (net) Total aseets 2019 $ 75,000 75,000 150,000 225,000 975,000 $1.500.000 2018 $150,000 225,000 112,500 262 500 1.125.000 1.875.000 Liabilities and stockholders' equity Accounts payable Short-term notes payable Bonds payable Common stock Retained earnings Total liabilities and stockholders' equity $ 75,000 150,000 300,000 562,500 412.500 $1.500.000 $ 112,500 337,500 600,000 562,500 262.500 $1.875.000 Flowers Co. Income Statement For the Year Ended December 31, 2019 $1,500,000 937.500 562,500 Net sales Cost of goods sold Gross profit Expenses Operating expenses Interest expense Total expenses Income before income taxes Income tax expense Net income $157,500 67.500 225.000 337,500 101.250 $236.250

Required:

a. Using the financial statements, compute the following ratios for Flowers Co. for 2019. Show all computations.                                                                                             (4 marks)

1. Current ratio.                                                          

2. Acid-test ratio.

3. Accounts receivable turnover.                               

4. Inventory turnover.

5. Profit margin.                                                         

6. Return on assets.

7. Assets turnover.                                                     

8. Times interest earned.

9. Working capital.

10. Debt to assets ratio.

Answer 1

1) Current ratio = Current assets/Current liabilites
Particulars	Amount
Current Assets
Cash	75000
Short term investments	75000
Accounts receivable	150000
Inventory	225000
TOTAL	525000
Current liabilities
Accounts payable	75000
Short term notes payable	150000
TOTAL	225000
Current ratio = Current assets/Current liabilites	2.33

1) Acid test ratio = Current assets-Inventory/Current liabilites
Particulars	Amount
Current Assets
Cash	75000
Short term investments	75000
Accounts receivable	150000
TOTAL	300000
Current liabilities
Accounts payable	75000
Short term notes payable	150000
TOTAL	225000
Acid test ratio	1.33

3. Accounts receivable turnover = Total sales/Accounts receivable

= 1,500,000/75000 = 20

4. Inventory Turnover = Total sales/Inventory

= 1,500,000/225,000 = 6.67

5. Profit Margin = Net profit/net sales

= 236250/1500000 = 15.75%

6. Return on assets = Net profit/Total assets

= 236250/1500000 = 15.75%

7. Assets turnover. = Total assets/Turnover

=1500000/1500000 = 1

8. Times interest earned = EBIT/Interest expense

= (562500-157500)/67500 = 6

9. Working capital = Current assets - current liabilities

= 525000-225000 = 300000

10. Debt to assets ratio = Total debt/Total assets

= (150000+300000)/1500000 = 0.3