Calculate the indicated ratios for Happy Hamburger.
Explain the current business model and discuss the benefits of incorporating the lean process.
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August 7, 2017Happy Hamburger Company
Using the financial statements for Happy Hamburger Company below:
- Calculate the indicated ratios for Happy Hamburger.
- Discuss Happy Hamburger’s strengths and weaknesses as revealed by your analysis.
- Suppose Happy Hamburger doubles its sales as well as its inventories, accounts receivable, and common equity during the year. How would that information affect the validity of your ratio analysis?
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Happy Hamburger Company |
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Income Statement for the year ending December 31, 20XX |
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| Sales | 1,607,500 |
| Cost of goods sold | 1,392,500 |
| Selling, general and administrative expenses | 145,000 |
| Earnings before interest and taxes (EBIT) | 70,000 |
| Interest expense | 24,500 |
| Earnings before taxes (EBT) | 45,500 |
| Federal and state income taxes (40%) | 18,200 |
| Net Income | 27,300 |
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Happy Hamburger Company |
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Balance Sheet as of December 31, 20XX |
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| Assets | Liabilities and Shareholder Equity | |||
| Cash | 80,500 | Accounts payable | 132,000 | |
| Accounts Receivable | 334,500 | Current portion of debt | 84,000 | |
| Inventories | 240,000 | Other current liabilities | 114,000 | |
| Total current assets | 655,000 | Total current liabilities | 330,000 | |
| Net fixed assets | 292,500 | Long-term debt | 256,500 | |
| Total assets | 947,500 | Total Liabilities | 586,500 | |
| Common equity | 361,000 | |||
| Total Liabilities & Equity | 947,500 | |||
| Happy | Industry | |
| Hamburger | Average | |
| Current ratio |
2.2 |
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| Days sales outstanding (based on 365 day year) |
36 days |
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| Inventory turnover |
6.7 |
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| Fixed asset turnover |
12.1 |
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| Total asset turnover |
3.00 |
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| Return on sales |
1.20% |
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| Return on assets |
3.60% |
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| Return on equity |
9.00% |
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| Debt ratio |
55% |
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