The following is the balance sheet and income statement for Metro Eagle Outfitters, in condensed form, plus some information from the cash flow statement. Balance Sheet 2019 2018 2017 Cash and short-term investments $ 630,992 $ 745,044 $ 734,693 Accounts receivable 46,321 40,310 36,721 Inventory 332,452 367,514 301,208 Other current assets 132,035 134,620 101,788 Total current assets 1,141,800 1,287,488 1,174,410 Long-lived assets 582,832 647,482 593,802 Total assets $ 1,724,632 $ 1,934,970 $ 1,768,212 Current liabilities $ 432,902 $ 405,401 $ 387,837 Total liabilities 503,445 517,786 417,141 Shareholders’ equity 1,221,187 1,417,184 1,351,071 Total debt and equity $ 1,724,632 $ 1,934,970 $ 1,768,212 Income Statement Sales $ 3,475,802 $ 3,120,065 $ 2,945,294 Cost of sales 2,085,480 1,975,471 1,763,143 Gross margin $ 1,390,322 $ 1,144,594 $ 1,182,151 Operating expenses 988,284 869,385 864,776 Earnings before interest and taxes $ 402,038 $ 275,209 $ 317,375 Net income $ 232,108 $ 151,705 $ 140,647 Interest paid in cash 80 182 161 Taxes paid in cash 142,009 99,756 45,737 Cash Flows Cash flow from operations $ 499,671 $ 398,137 $ 380,416 Capital expenditures 93,939 89,466 75,904 Dividends 85,592 85,592 83,166 Required: Calculate the following liquidity ratios for Metro Eagle in 2018 and 2019: 1. Inventory turnover. 2. Current ratio. 3. Quick ratio. 4. Cash flow ratio.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
The following is the
| Balance Sheet | 2019 | 2018 | 2017 | ||||||||
| Cash and short-term investments | $ | 630,992 | $ | 745,044 | $ | 734,693 | |||||
| 46,321 | 40,310 | 36,721 | |||||||||
| Inventory | 332,452 | 367,514 | 301,208 | ||||||||
| Other current assets | 132,035 | 134,620 | 101,788 | ||||||||
| Total current assets | 1,141,800 | 1,287,488 | 1,174,410 | ||||||||
| Long-lived assets | 582,832 | 647,482 | 593,802 | ||||||||
| Total assets | $ | 1,724,632 | $ | 1,934,970 | $ | 1,768,212 | |||||
| Current liabilities | $ | 432,902 | $ | 405,401 | $ | 387,837 | |||||
| Total liabilities | 503,445 | 517,786 | 417,141 | ||||||||
| Shareholders’ equity | 1,221,187 | 1,417,184 | 1,351,071 | ||||||||
| Total debt and equity | $ | 1,724,632 | $ | 1,934,970 | $ | 1,768,212 | |||||
| Income Statement | |||||||||||
| Sales | $ | 3,475,802 | $ | 3,120,065 | $ | 2,945,294 | |||||
| Cost of sales | 2,085,480 | 1,975,471 | 1,763,143 | ||||||||
| Gross margin | $ | 1,390,322 | $ | 1,144,594 | $ | 1,182,151 | |||||
| Operating expenses | 988,284 | 869,385 | 864,776 | ||||||||
| Earnings before interest and taxes | $ | 402,038 | $ | 275,209 | $ | 317,375 | |||||
| Net income | $ | 232,108 | $ | 151,705 | $ | 140,647 | |||||
| Interest paid in cash | 80 | 182 | 161 | ||||||||
| Taxes paid in cash | 142,009 | 99,756 | 45,737 | ||||||||
| Cash flow from operations | $ | 499,671 | $ | 398,137 | $ | 380,416 | |||||
| Capital expenditures | 93,939 | 89,466 | 75,904 | ||||||||
| Dividends | 85,592 | 85,592 | 83,166 | ||||||||
Required:
Calculate the following
1. Inventory turnover.
2.
3. Quick ratio.
4. Cash flow ratio.
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