Question

Income Statement			2008	2009
Total Market (lawns professionally treated)			45,000	43,000
LR Lawns Treated (unit volume)			11,000	12,000
Sales Revenue			$                  860,000	$             885,000
Memo: Market Share			24%	28%
Memo: Avg. Revenue/Lawn			$                               78	$                          74
Less: Variable Cost of Sales Revenue
Chemicals			$                  115,000	$             125,000
1099 Workers *			$                  175,000	$             182,000
Truck Running Costs			$                     40,000	$                40,000
Total Cost of Sales Revenue			$                  330,000	$             347,000
= Gross Profit Margin			$                  530,000	$             538,000
Memo: Gross Profit Margin %			38%	39%
Less: Overhead (Other Operating) Expenses:
Salaried Employees			$                  190,000	$             180,000
Office and Warehouse rent			$                     90,000	$                90,000
Depreciation of Trucks			$                     30,000	$                40,000
Advertising			$                     30,000	$                40,000
Total Overhead Expenses			$                  340,000	$             350,000
= EBIT (net operating income)			$                  190,000	$             188,000
less: Interest Expense			$                     23,000	$                35,000
= Pretax Income (profit)			$                  167,000	$             153,000
less: Income taxes			$                     40,000	$                35,000
= Net Income (profit)			$                  127,000	$             118,000
Memo: Profit Margin %			15%	13%
Balance Sheet
Cash			$                        5,000	$                   5,000
Accounts Receivable			$                     25,000	$                40,000
Inventories			$                        8,000	$                   9,000
= Current Assets			$                     38,000	$                54,000
Fixed Assets			$                  500,000	$             550,000
- Accumulated Depreciation			$                     80,000	$             120,000
= Net Fixed Assets			$                  420,000	$             430,000
Total Assets			$                  458,000	$             484,000
Accounts Payable			$                        8,000	$                20,000
Bank Loans			$                  275,000	$             300,000
= Total Liabilities			$                  283,000	$             320,000
Common Stock (Invested capital)			$                  100,000	$             100,000
Retained Earnings			$                     75,000	$                64,000
Total Liabilities and Owner's Equity			$                  458,000	$             484,000
* Workers are paid based upon the number of lawns treated (not hourly).

Please calculate the following for 2009:

a)   Return on Assets:
b)   Current Ratio:
c)   Debt/Equity Ratio:
d)   Cash flow from Operations:
e)   Cash flow from Investing Activities:
f)   Cash Flow from Financing Activities:
g)   Net Change in Cash for the year:

Answer 1

a. Return on assets= Net Income / Average Total Assets = $ 118,000 / $ 471,000 * 100 = 25.05 %

b. Current ratio = Current Assets / Current Liabilities = $ 54,000 / $ 20,000 = 2.7 : 1

c. Debt Equity Ratio = Total Liabilities / Owner's Equity = $ 320,000 / $ 164,000 = 1.9512 or 195.12 %

d. Cash flow from operations:

Net Income	$ 118,000
Adjustments to reconcile net income to net cash provided by operations
Depreciation expense	40,000
Increase in accounts receivable	(15,000)
Increase in inventories	(1,000)
Increase in accounts payable	12,000
Net cash flows from Operating Activities	$ 154,000

e. Cash flows from Investing Activities : $ ( 50,000)

f. Cash flows from Financing Activities: $ ( 104,000)

Cash from bank loans	25,000
Dividends paid	(129,000)
Net cash used in Financing Activities	(104,000)

g. Net change in cash for the year = $ 154,000 - $ 50,000 - $ 104,000 = $ 0