All questions relate to Galaxy Interiors unless indicated otherwise. Please show all work.
- What is the current ratio for 2008 and 2009?
Current Ratio is a liquidity ratio that measures company's ability to finance/cover its debt over the next 12 months or its business cycle. Current Ratio formula is given as
So the current assets was 1.46 times the current liabilities in year 2008 whereas in 2009 the current assets was 3.11 times the current liabilities suggesting an improvement in current ratio.
- What is OCF for 2009?
In finance, operating cash flow means the total amount of cash that the company generates from its normal business operation over a period of time. It measures the company’s ability to generate sufficient positive cash flow to maintain and grow its operations. It is calculated as
OCF = EBIT + Depreciation – Taxes
OCF2009 = $3,396+$1,611-$740
OCF2009 = $ 4,267
So the company was able to generate $ 4,267 in 2009 to maintain its operations for the period.
- What is NCS for 2009?
NCS stands for net capital spending of a company which measure the total amount of money that the company invests in their fixed assets over the course of an accounting period.
NCS = Ending FA – Beginning FA + Depreciation
NCS = $ 17,107 - $ 17,489 + $1,611
NCS = $ 1,229
So, the company has invested $ 1,229 for the year 2009.
4) What is the Change in NWC for 2009?
Net working capital is the excess of current assets over current liabilities. Calculating the Change in Net Working Capital is done using following formula
Change in Net working Capital= (Cash + A/R + Inventory- A/P +Accruals) of 2009 - (Cash + A/R + Inventory - A/P +Accruals) of 2008
Change in Net working Capital = (297+1527+2947-1532-0) – (668+1611+3848-1694-2500)
Change in Net working Capital = 3239-1933
Change in Net working Capital = $ 1,306.
So, the company had $ 1,306 of net working capital more in 2009 than in 2008.
5) What is the Gross Profit Margin for 2008 and 2009?
The gross profit margin reflects the efficiency with which management produces each unit of product and it reflects average spread between the cost of goods sold and the sales revenue. It is calculated as
Gross Profit Margin= Sales-Cost of Goods SoldSales
Since we are only given the sales figure of 2009, it is impossible to calculate gross profit margin for year 2008.
So we calculate gross profit margin of 2009 as
Gross Profit Margin= $ 21,415-$ 16,408$ 21,415
Gross Profit Margin=23.38%
23.38% gross profit margin means that for every dollar generated in sales, the company has 23.38 cents left over to cover basic operating costs and profit.
6) What is the Net Income margin for 2008 and 2009?
Net Income margin is the ratio of net income to total income. The net income margin ratio shows the proportion of every dollar of sales that is left after all expenses have been paid, and remains as net profit. It is calculated as
Net Profit Margin= Net ProfitTotal Income*100%
Since we do not have profit for 2008, it is only possible to calculate net profit margin of 2009.
Net Profit Margin 2009= $ 1,374$ 21, 415*100%
Net Profit Margin 2009=6.42%
Hence, the company is able to save 6.42 cents for each dollar of sales it make.
7) What is CFFA for 2009?
CFFA stands for Cash Flow from Assets which measures the total cash flows generated by the firm's assets. It is also known as the Cash Flow of the Firm. It is calculated as
Cash Flow from Assets = Operating Cash Flow-Capital Spending-Change in NWS
Cash Flow from Assets = $ 4,267 - $1,229-$1,306
Cash Flow from Assets = $ 1,732
So, in 2009 the company generated $ 1,732 using its fixed assets.
8) Assuming all sales are on account, what is the A/R turn for 2008 and 2009?
Accounts receivable turnover is the ratio of net credit sales of a business to its average accounts receivable during a given period, usually a year. It is an activity ratio which estimates the number of times a business collects its average accounts receivable balance during a period. It is calculated as
Receivable turnover= Net Credit SalesAverage Accounts Receivable
Since we do not have sales amount for 2008, we cannot calculate receivable turnover for 2008, but we can calculate receivable turnover for 2009.
Net credit sales = $ 21,415
Average Accounts Receivable = (1611+1527)/ 2 = $ 1,569
Receivable turnover= $ 21,415$ 1,569
Receivable turnover= 13.65 times
So, the company collects its receivables 13.65 times in a year from its debtors.
9) What is the A/P turn for 2008 and 2009?
Payables turnover is an important activity ratio, and provides a measure of how effectively a business is managing its payables. The payables turnover ratio measures the number of times the company pays off all its creditors in one year. It is calculated as
Payable turnover= Credit purchaseAverage payables
Since we are not given the purchase amount as well as cost of goods sold for the year 2008 we cannot calculate payable turnover for 2008. But for 2009 we can calculate purchase of 2009. So to calculate for year 2009 we use average of $1694 and $1532 which equals to $1,613 as average payable.
Payable turnover2008=Credit purchase2008Average Payable2008
Payable turnover2009=Credit purchase2009Average Payable2009
Payable turnover2009=$ 15,507$1,613
Payable turnover2009=9.61 times
So, the company pays 9.61 times in a year to its creditors.
Working Note:
Purchase for 2009 = Ending inventory of 2009 + Cost of goods sold – Beginning inventory of 2009
Purchase for 2009 = $2,947+ $16,408 – $3,848
= $ 15,507
So the company purchased inventory worth $ 15,507 in 2009
10) How many days of inventory do they have on hand for 2009?
Days in inventory is an efficiency ratio that measures the average number of days the company holds its inventory before selling it. It is calculated as
Days in Inventory = 365* Average inventoryCost of goods sold
Days in Inventory = 365 * 3848+2947216408
Days in Inventory = 365*0.207
Days in Inventory= 75.58 days
So, the company holds its inventory for 75.58 days before it sells it in year 2009.
