lulISSerle had the following balance sheet at beginning 2017: Restaurant buildin

Question

lulISSerle had the following balance sheet at beginning 2017: Restaurant building Restaurant equipment, including furniture Food ingredients plus paper goods, etc. Cash 250,000 25,000 5,000 2,000 Owners' Equity Bank Loan 200,000 82,000 RR prepared and served 10,000 meals during 2017 for which it received an average of 30/meal. Its labor, intermediate goods, gas and electricity, rent cost 225,000. Ignore any depreciation for now. The interest rate on its loan is 7.5%. The cash on its balance sheet represents the average balance on its checki account, which pays 0 interest. Rutgers Rotisserie's tax rate is 22%. RR decided to pay out 60% of its after-tax profits as dividends. What are RR's before and after-tax profits for the year? Its ROE? Coverage ratio? Follow the cash and calculate the change in cash between the start and end of the year.

Explanation / Answer

Kindly note it has assumed that company has paid interest, taxes and dividend.

Income Statement Sales Revenue 10000*30 $    300,000.00 Less: Labor, intermediate goods, gas and electricity, rent $    225,000.00 Earnings before Interest and taxes $      75,000.00 Less : Interest 82000*7.5% $        6,150.00 Earnings before taxes (Pre tax profit) $      68,850.00 Less: Tax- 22% $      15,147.00 Earnings available for stock holders (Post tax Profit) $      53,703.00 Calculation of ROE Earnings available for owner $      53,703.00 Owners equity $    200,000.00 ROE 26.85% Calculation of Interest Coverage ratio Earnings before Interest and taxes $      75,000.00 Interest $        6,150.00 Interest Coverage Ratio 12.195 Statement of cash flow Opening Cash Balance $        2,000.00 Cash received from Sales $    300,000.00 Labor, intermediate goods, gas and electricity, rent paid $ (225,000.00) Interest Paid $      (6,150.00) Tax Paid $    (15,147.00) Dividend Paid $    (32,221.80) Closing Cash Balance $      23,481.20

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