Calculate the indicated ratios for happy hamburger

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Reference no: EM131146991

Happy Hamburger Company

Using the financial statements for Happy Hamburger Company below:

1. Calculate the indicated ratios for Happy Hamburger.

2. Discuss Happy Hamburger's strengths and weaknesses as revealed by your analysis.

3. 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?

Happy Hamburger Company

Income Statement for the year ending December 31, 20XX

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 



Happy Hamburger Company

Balance Sheet as of December 31, 20XX

Assets

Liabilities and Shareholder Equity




Cash

           80,500

Accounts payable

         132,000


Accounts Receivable

         334,500

Current portion of debt

           84,000


Inventories

         240,500 

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

Days sales outstanding (based on 365 day year)

 

36 days

Inventory turnover

 

6.7

Fixed asset turnover

 

12.1

Total asset turnover

 

3.00

Return on sales

 

1.20%

Return on assets

 

3.60%

Return on equity

 

9.00%

Debt ratio

 

55%

Reference no: EM131146991

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