In: Accounting
Boom Ltd has the following comparative data. | ||||
BOOM LTD | ||||
Statement of financial position as at 30 June | ||||
2020 | 2019 | |||
$ | $ | |||
Cash | 20,280 | 30,990 | ||
Receivables (net) | 62,860 | 58,170 | ||
Inventories | 57,620 | 49,680 | ||
Property, plant and equipment (net) | 205,470 | 175,370 | ||
346,230 | 314,210 | |||
Accounts payable | 52,350 | 60,350 | ||
Loan payable (15%) | 96,000 | 96,000 | ||
Share capital, $10 each | 135,000 | 121,000 | ||
Retained earnings | 62,880 | 36,860 | ||
346,230 | 314,210 |
Additional information for 2020: | ||||||||||
1 | Profit was $20,870 | |||||||||
2 | Sales on account were $371,600. Sales returns and allowances amounted to $31,500 | |||||||||
3 | Cost of sales was $199,700 | |||||||||
4 | Net cash provided by operating activities was $52,400 | |||||||||
5 | The loan payable is a non-current liability in both years. | |||||||||
6 | Depreciation for the year was $20,500 and there were no disposals in the year. |
Required | |||||||||||
Calculate the following at 30 June 2020 (round your final answers to 2 decimal places): | |||||||||||
a) Current ratio. | |||||||||||
b) Quick ratio. | |||||||||||
c) Average collection period. | |||||||||||
d) Average days in inventory. | |||||||||||
e) Cash return on sales ratio. | |||||||||||
f) Cash debt coverage. | |||||||||||
g) Current cash debt coverage. | |||||||||||
h) Capital expenditure ratio | |||||||||||
i) Free cash flow |
A. Current Ratio :-
Current Assets / Current Liabilities
= $140760/$52350
=2.688
=2.69
B. Quick Ratio :-
Quick Assets / Quick or Current Liabilities
= $83140/ $52350
=1.588
=1.59
C. Calculation of Average collection period :-
12 months / Receivables turnover Ratio
= 12 months / 5.62 times
=2.135
=2.13 months
Receivables Turnover Ratio
= Net Credit Sales / Average Accounts Receivables
Therefore Net Credir Sales = Total Credit sales - Returns and Allowance
= $371600 - $31500
= $340100
Average Accounts Receivables =( Beginning Accounts receivables + Ending Accounts Receivables)/2
= ($58170+ $62860)/2
=$60515
Receivables turnover ratio = Net credit sales/ Average receivables
= $340100/ $60515
=5.62 times
D. Average Days in Inventory:-
12 months/ Inventory turnover ratio
= 366 days/ 3.72 times
=98.387 days
=98.39 days
(since 2020 is leapi year therefore total days in the year is 366 days)
Inventory Turnover ratio= Cost of goods sold(Cost of Sales)/ average Inventory
= $199700/ $53650
=3.722
=3.72 times
Therefore, Average Inventory=( Beginning Inventory + Ending Inventory )/2
=($49680+ $57620)/2
=$53650.
E. Calculation of Cash return on sales ratio:-
Cash collected from Customer / Total Credit Sales
= $335410/ $371600
=0.9026
=0.90
therefore Cash collected from customers :-
Opening balance of receivables $58170
Credit Sales $371600
Returns and Allowance $(31500)
Ending balance of Receivables $(62860)
Cash Collected from Customers $335410
F. Cash Debt Coverage :-
Cash flow from Operation / Total Debt
=$52400/ $96000
=0.5458
=0.546
=0.55
G. Current Cash Debt Coverage:-
Cash flow from Operation / Current Liabilities
= $52400/$52350
=1.0009
=1.00
H. Capital Expenditure ratio :-
Cash Flow from operation / Capital Expenditure
=$52400/ $50600*
=1.035
=1.03
Capital Expenditure = $205470+$20500-$175370
=$50600
I. Free Cash Flow:-
Cash flow from operation + Interest expense - Capital Expenditure
=$52400 + (15% of $96000) -$50600
=$52400 + $14400 - $50600
= $16200.