Calculate the indicated ratios for happy hamburger

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Reference no: EM131398007

Assignment: 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

240,000

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

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: EM131398007

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