Financial information for Mari
Financial information for Mario Ltd is presented here.
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MARIO LTD Statement of FinancialPosition as at 31 December |
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|
2019 |
2018 |
|
|
$ |
$ |
|
|
ASSETS |
||
|
Cash |
50,000 |
42,000 |
|
Short-term investments |
80,000 |
50,000 |
|
Receivables (net of allowance for doubtful accounts of $4,000for 2019 and $3,000 for 2018) |
100,000 |
87,000 |
|
Inventories |
440,000 |
300,000 |
|
Prepaid expenses |
25,000 |
31,000 |
|
Land |
75,000 |
75,000 |
|
Building and equipment (net) |
570,000 |
400,000 |
|
Total assets |
$1,340,000 |
$985,000 |
|
LIABILITIES AND EQUITY |
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|
Short term provisions |
125,000 |
25,000 |
|
Accounts Payable |
160,000 |
90,000 |
|
Accrued Liabilities |
50,000 |
50,000 |
|
Bonds payable, due 2021 |
200,000 |
100,000 |
|
Share capital (100,000 shares) |
500,000 |
500,000 |
|
Retained earnings |
305,000 |
220,000 |
|
Total liabilities andequity |
$1,340,000 |
$985,000 |
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MARIO LTD Statement of Profit orLoss for the year ended 31December |
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|
2019 |
2018 |
|
|
$ |
$ |
|
|
Sales |
1,000,000 |
940,000 |
|
Cost of sales |
(650,000) |
(635,000) |
|
Gross profit |
350,000 |
305,000 |
|
Finance cost |
(20,000) |
(10,000) |
|
Operating expenses |
(115,000) |
(145,000) |
|
Profit before tax |
215,000 |
150,000 |
|
Tax expense |
(100,000) |
(70,000) |
|
Profit |
$115,000 |
$80,000 |
Additional information:
- Inventory at the beginning of 2018 was $350,000.
- Receivables at the beginning of 2018 were $80,000, net of anallowance for doubtful debts account of $3,000.
- Total assets at the beginning of 2018 were $1,175,000.
- No share capital transactions occurred during 2018 or2019.
- All sales were on account.
Required
- Please calculate the following ratios, for 2019 and 2018, usingthe information from Mario Ltd:
- Liquidity: Current, Quick, Receivables Turnover, and InventoryTurnover.
- Profitability: Profit Margin, Asset Turnover, Return on Assets,and Earnings Per Share.
- Based on your calculations, explain the changes in liquidityand profitability of Mario Ltd from 2018 to 2019. That is, has eachratio improved/declined, and what does this movement mean?
- How can Mario Ltd improve their Receivables Turnover and theirInventory Turnover?
Answer:
Following are the formulas for the respective ratios.
a LIQUIDITY
Current ratio = current assets / current liabilities
Current ratio in 2018 = 510000 / 165000 = 3.09
Current ratio in 2019 = 695000 / 335000 = 2.07
Quick ratio = cash and cash equivalents + marketable securities+ account receivables / current liabilities
Quick ratio in 2018 = 176000 / 165000 = 1.067
Quick ratio in 2019 = 226000 / 335000 = .67
Account receivables turnover = credit sales / average accountreceivables
Account receivables turnover in 2018 = 940000 / 80500
= 11.67
Account receivables turnover in 2019
= 1000000 / 90000 = 11.11
Inventory turnover = cost of goods sold / average inventory
Inventory turnover in 2018 = 635000 / 325000 = 1.95
Inventory turnover in 2019 = 650000 / 370000 = 1.75
PROFITABILITY
Profit margin = (Net profit / sales) × 100
Profit margin in 2018 = (80000 / 940000) × 100 = 8.51%
Profit margin in 2019 = (115000 / 1000000) × 100 = 11.5%
Assets turnover = (sales /average total assets) × 100
Assets turnover in 2018 = (940000 / 1080000) × 100 = 87.03%
Assets turnover in 2019 = (1000000 / 1162500 ) × 100 =86.02%
Return on assets = (net profit / average total assets) × 100
Return on assets in 2018
= (80000 / 1080000) × 100 = 7.40%
Return on assets in 2019
= (115000 / 1162500) × 100 = 9.89%
Earnings per share = income available to common share holders /weighted average number of common shares outstanding
There is no information about dividend so full net income istaken as income available to common share holders
Earnings per share in 2018 = 80000 / 100000 = .8
Earnings per share in 2019 = 115000 / 100000 = 1.15
| Ratios | 2019 | 2018 |
| Liquidity | ||
| Current ratio | 2.07 | 3.09 |
| Quick ratio | .67 | 1.067 |
| Account receivables turnover | 11.11 | 11.67 |
| Inventory turnover | 1.75 | 1.95 |
| Profitability | ||
| Profit margin | 11.5% | 8.51% |
| Assets turnover | 86.02% | 87.03% |
| Return on assets | 9.89% | 7.40% |
| Earnings per share | 1.15 | .8 |
b
LIQUIDITY
* current ratio is declined from 3.09 to 2.07. It indicates theshort term obligation meet ability of company decreased as compared2018 to 2019
* quick ratio also decreased from 1.067 to .67 It clearly showthat the company ability to meet its short term liabilities byusing its more liquid assets like cash and cash equivalents,marketable securities and account receivables are decreased.
* Account receivables turnover of the company is decrease from11.67 to 11.11 . Which show the account receivables collectioncapacity of the company decrease and collection period increase. Itis negatively affect the company.
* inventory turnover of the company decrease from 1.95 ho 1.75.It means that the inventory selling ability of the company decreaseand inventory in hand days increase. It is negatively affecting thecompany.
PROFITABILITY
* Profit margin of the company increase from 8.51% to 11.5% .Which means the profitability of the company increase from 2018 to2019.
* Assets turnover ratio of the company decrease from 87.03% to86.02%. It means the company ability to use its assets forgenerating revenue (sales) decrease .
* Return on assets ratio increase from 7.40% to 9.89%. Whichmeans the ability of the company to use its assets to generateprofit increase.
* Earnings per share of the company increase from .8 to 1.15. Itmeans the earnings per share of common stock increases.
c * the company can improve its account receivables by timelycollecting the receivables,maintaining a good relationship withpositive customer’s, and take initiative for early payment
* the company can improve its inventory turnover by increasingdemand for inventory, good sales predictions , good pricingstrategies, set price based on the situation , and provideadvertisements, discount and offers
The above are the detailed calculations,equations andexplanations.
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