Question

Glücklich Golfspieler (GG) is a golf club company headquartered in Germany. The company began its 2013 fi scal year with assets totaling 10 million euro but ended the year (on December 31, 2013) with 13 million euro of total assets. Account balances on December 31, 2013, appear below (in thousands of euro).

Required:
1. Prepare a statement of financial position at December 31, 2013, using Exhibit 5.12 as a guide.
2. Use an appropriate ratio to compute GG's financing risk. Compare GG's ratio to the 0.20 reported for one of its close competitors. Which company appears more likely to pay its liabilities?
3. Use an appropriate ratio to compute the amount of profit GG earns from each euro of sales. Compare GG's ratio to its competitor, which had a ratio of 0.05. Which company is better able to control its expenses?
4. Use an appropriate ratio to compute GG's efficiency at using assets to generate sales. Compare GG's ratio to the 2.60 reported for its competitor. Which company is more efficient at using its assets to generate sales?

 

 

Answer 1

Req. 1

GLŰCKLICH GOLFSPIELER

Statement of Financial Position

At December 31, 2013

(in thousands of euro)

                                                                                                                                                                                                                                                                                                     

	Assets
	Goodwill and Intangible  Assets			450
	Other Non-current Assets			400
	Land			100
	Buildings and Equipment			5,500
	Less: Accumulated  Depreciation			(2,500)
		Total Non-current Assets		3,950
		Current Assets:
		Prepaid Expenses		250
		Inventory		2,500
		Accounts Receivable		500
		Cash		5,800
		Total Current Assets		9,050
	Total Assets			13,000
Equity and Liabilities
	Stockholders’ Equity:
		Contributed Capital		400
		Retained Earnings*		9,000
		Total Stockholders’ Equity		9,400
	Other Long-term Liabilities			1,100
	Notes Payable			600
	Total Non-current  Liabilities			1,700
	Current Liabilities:
		Accrued Liabilities		900
		Accounts Payable		1,000
		Total Current Liabilities		1,900
		Total Liabilities		3,600
		Total Liabilities and Stockholders’  Equity		13,000

*Calculation of Retained Earnings:

Beginning     5,000

Net Income   4,000

Dividends        -0-  

Ending          9,000

 

Req. 2 

 

2013

                                 

Debt-to-assets	=	Total Liabilities	=	€3,600	=	.277	=	27.7%
		Total Assets		€13,000

 

Glücklich Golfspieler’s debt-to-assets ratio is 0.277, which is higher than the competitor’s ratio of 0.20.  This indicates that the competitor has less financing risk for creditors (and investors) and is more likely to pay its liabilities.  

 

Req. 3

 

2013

                                 

Net profit margin	=	Net Income	=	€4,000	=	.091	=	9.1%
		Total Revenue		€44,000

 

Glücklich Golfspieler’s net profit margin shows a profit of 9.1 percent for each euro of sales, which is higher than the competitor’s ratio that shows a profit of 5.0 percent.  Glücklich Golfspieler is better able to control its expenses.

 

Req. 4

 

2013

                         

Asset turnover	=	Total Revenue	=	€44,000	=	3.83
		Average Total Assets		(€10,000 + €13,000)/2

 

 

Glücklich Golfspieler’s asset turnover ratio of 3.83 is higher than the competitor’s ratio of 2.60.  This analysis indicates that Glücklich Golfspieler is more efficient in using assets to generate sales.