The financial statements for Lake of Egypt Marina is provided: Lake of Egypt Marina, Inc. Balance…
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Question “The financial statements for Lake of Egypt Marina is provided: Lake of Egypt Marina, Inc. Balance…”
The financial statements for Lake of Egypt Marina is provided: Lake of Egypt Marina, Inc. Balance Sheet as of December 31, 2007 and 2008 (in millions of dollars) 2007 2008 Liabilities & Equity Assets 2007 2008 Current assets: Cash and marketable securities Accounts receivable Inventory Total $ 65 $ 75 110 115 190 200 $365 $ 390 Current liabilities Accrued wages and taxes Accounts payable Notes payable Total $ 43 $ 40 80 90 70 80 $ 193 $ 210 Long-term debt: $ 280 $ 300 $ 471 $ 580 100 110 Fixed assets: Gross plant and equipment Less: Depreciation Net plant and equipment Other long-term assets Total $ 371 $ 470 49 50 $ 420 $ 520 Stockholders’ equity: Preferred stock (5 million shares) $ 5 $ 5 Common stock and paid-in surplus 65 65 (65 million shares) Retained earnings 242_330 Total $ 312 S 400 Total liabilities and equity $ 785 $ 910 Total assets $ 785 S 910
Lake of Egypt Marina, Inc. Income Statement for Years Ending December 31, 2007 and 2008 (in millions of dollars) 2007 2008 Net sales (all credit) $ 432 $ 515 Less: Cost of goods sold 200 260 Gross profits 232 255 Less: Depreciation 20 22 Earnings before interest and taxes (EBIT) 212 233 Less: Interest 30 33 Earnings before taxes (EBT) 182 200 Less: Taxes 57 Net income $ 127 $ 143 55 Less: Preferred stock dividends Net income available to common stockholders Less: Common stock dividends Addition to retained earnings $ 5 $ 122 $ 65 $ 57 $ 5 $ 138 $ 65 $ 73 Per (common) share data: Earnings per share (EPS) Dividends per share (DPS) Book value per share (BV) Market value (price) per share (MV) $1.877 $1.000 $4.723 $12.550 $2.123 $1.000 $6.077 $14.750
Industry 2.0 times 1. Current ratio 2. Quick ratio 3. Inventory turnover ratio 4. Days’ sales in inventory 5. Average collection period 6. Average payment period 7. Total asset turnover ratio 8. Debt-to-equity ratio 9. Profit margin 1.2 times 3.60 times 101.39 days 32.50 days 45 days 0.85 times 1.67 times 28.75%
Industry 1. Current ratio 2. Quick ratio 3. Inventory turnover ratio 4. Days’ sales in inventory 5. Average collection period 6. Average payment period 7. Total asset turnover ratio 8. Debt-to-equity ratio 9. Profit margin 2.0 times 1.2 times 3.60 times 101.39 days 32.50 days 45 days 0.85 times 1.67 times 28.75% Requirements: Using the Industry averages provided, calculate similar ratios for Lake of Egypt Marina Inc. and comment on its performance as at year-end 2008.
Answer
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Summary: Lake of Eqypt Marina Inc has a lower performance than the Industry average. The entity’s business is at risk
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1) Current Ratio: v t Formula : Current Ratio = Current Assets Current liabilities Current Cursent Assets liabilities 2008 390 210 Celssent Ratio e 390 210 Current Ratio = 1.85717 2) Quick Ratio Formula : Quick Ratio . Current Assets – Inventory Current Liabelities po08 Current Assets 390 Less! Invenlory (200), 190 Current Liability 210 Quick Ratio, 190 Quick Ratio = 0.8047
Joventory Twinoven Formula Inventory turnover ratio Cost of Average Goods Sold inventory – average opening inventory – inventory inventory 2008 s Cost of Goods Sold = 260 I Average Inventory = 195 190 +a00. 195 Average inventory = 19 Closing inventor4 = (closing 2007), nventory 200 (2008). s Using formule 2260 TIS Inventory turnover Ratio = 1.3333 Conclusion: A higher turnover ratio is better.
4) Daily sales in inventory Formula: Ending = Inventory eso X 365 Days Cost of Goods Sold 2008 Ending inventory = 200 Cost of Goods Sold = 860. Using formula 5800x 365 Days 260 Day sales in inventory = 281 (Rounded off = 5) Average collection period Formula. = 365 days o Average Receivable Turnover ratio Average receivable turnover ratio Credit sales opening, t closing receivable receival
2008 515 Credit sales-opening Closing receivable = 110 (8017 close). (2018) ads E) = 3 112.5. Using in formula (Average reciveable tusnover rate i 118.5 = 4.57.77) Using main formula (Average collection period – 365 Days 4-5777 T = 797 days Average collection period =79-7 days
) Average payment period Formula Average account payable (ind Notes) (Total credit purchase/ 365 days) 2008 Average account payable opening payable = 80 C20D7 closing) = – go (+) closing payable (-) Devided for 10 85 Samobor Average account payables Average Notes payable opening payable = 70 OC2007 closing) (+) Closing payable = 80 (2008) ) Device 2008 Average Notes payable=175 so 2 = 270 Total credit purchases Dec (Refer next picture)
Coredit purchases Open inventosy 3190 (260) Less: Costs of Goods Sold (260) Total Credit Purchase 870 (270/365 Days = 160 0.7397 = 213. days (Rounded offB7 7) Total Assets turnover Ratio: Formula inne Net Sales Average Total assets et sales = 2008 515 Total Assets Opening (2007 closing). 785
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Formula: 143 X100 515 (Profit margin = 27:762) 143 X100 515 (Profit Margin = 27:762)
Comparison Ratios Lake Egypt Marina Industy (High/low) What y who average good are (High/low?) 1.8571 time 2.0 time Higher Current Ratio Inclusta 3. Quick – Ratio 0.9047 times 1-2 times higher Industan 1. 8333 timu 3.6% Highes Industry 3) Average Inventory Turnover Salio 4 Days 281 days 101.39 days Lower Industry collection period Average 16 Days 45 days Lower Industs payments period 7 Total Assaly 0.6073x 0.85 timu Higher Industries turnover ratio 8) Lower Egypt equity Marine
9) Profit Maagin. 87.764, 8.75% Industry High. Conclusion: Egypt Maring Inc. is not performing as per the Industry Average. The risk of losing market share or going out of business is therefore higher.
Conclusion
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