Question

Renegade's Pet Paradise has the completed its balance sheet and income statement (See worksheet "FinStmnts"). Based on this information, determine the ratios. In addition to the ratio analysis, look over the results and state whether or not you would invest in this company. Support your response based on the numbers provided, including ratios. Include a STEEP* analysis to help present a complete picture. Use complete sentences and proper grammar. You are presenting this to the Board of Directors. Remember they decide whether to keep management on the team or replace current management with new agents. In addition to supporting your recommendation with facts, communication skills are highly reviewed in evaluating management and its proposals.

Calculate the following ratios:
a. Working Capital			B/S
b. Current Ratio			B/S
c. Inventory Turnover			B/S & I/S
d. Average Days to Sell Inventory			See above
e. Debt to Assets			B/S
f. Debt to Equity			B/S
g. (Net) Margin			I/S
h. (Asset) Turnover			BS & I/S
i. ROI (which is Margin * Turnover)			See above
j. ROE			BS & I/S

Renegade's Dog Paradise				Renegade's Dog Paradise					Renegade's Dog Paradise
Income Statement				Balance Sheet					Balance Sheet
For Month Ending 12/31/16				12/31/2016					12/31/2015
Revenue		48,000		Cash	17,200				Cash	15,300
COGS		23,000		A/R	43,000				A/R	42,000
Gross Profit		25,000		Prepaid Rent	6,000				Prepaid Rent	3,000
Op Expenses:				Inventory	84,000				Inventory	78,000
Wage Expense		8,380		Current Assets			150,200		Current Assets			138,300
Rent Exp		1,200		PPE	72,000				PPE	70,000
Insurance Exp		1,000		Less AccumDeprec	1,200				Less AccumDeprec	1,000
Utility Expense		750		Non-Current Assets			70,800		Non-Current Assets			69,000
Net Operating Inc		13,670		TOTAL ASSETS			221,000		TOTAL ASSETS			207,300
Interest Exp		500
Depreciation Expense		1,200		A/P	73,000				A/P	69,500
Taxes		200		Wages Payable	10,500				Wages Payable	9,570
NET INCOME		11,770		Current Liab		83,500			Current Liab		79,070
				N/P	20,000				N/P		22,500
				TOTAL Liab			103,500		TOTAL Liab			101,570
				Common Stock		100,000			Common Stock		100,000
				Retained Earnings		17,500			Retained Earnings		5,730
				TOTAL OE			117,500		TOTAL OE			105,730
				TOTAL LIAB & OE			221,000					207,300

Show steps please.

Answer 1

Ans.(a)	Working Capital =		Current Asset - Current Liability
	=		$150,200 - $83,500
	=		$66,700
Ans.(b)	Current Ratio =		Current Asset / Current Liability
	=		$150,200 / $83,500
	=		1.80 Times
Ans.(c)	Inventory Turnover =		Cost of Goods Sold / Average Inventory
	=		$23,000 / {($84,000 + $78,000)/2}
	=		$23,000 / $81,000
	=		0.28 Times
Ans.(d)	Average day's to sell Inventory =			365 / Inventory Turnover Ratio
	=			365 / 0.28
	=			1303.57
Ans.(e)	Debt to Assets =		Total Debt / Total Asset
	=		$103,500 / $221,000
	=		0.47
	=		47%
Ans.(f)	Debt to Equity =		Total Liabilities / Shareholder's Equity
	=		$103,500 / $117,500
	=		0.88
Ans.(g)	(Net) Margin =		Net Profit / Total Revenue
	=		$11,770 / $48,000
	=		0.25
	=		25%
Ans.(h)	Asset Turnover =		Net Sales / Average Total Assets
	=		$48,000 / {(221,000 + $207,300) / 2}
	=		$48,000 / $214,150
	=		0.22
Ans.(i)	ROI =	Net Margin x Turnover
	=	$48,000 x 25%
	=	$12,000
Ans.(j)	ROE =	Net Profit / Shareholder's Equity
	=	$11,770 / $117,500
	=	0.1