The following is the balance sheet and income statement for Urban Eagle Outfitte

Question

The following is the balance sheet and income statement for Urban Eagle Outfitters, in condensed form, plus some information from the cash flow statement Balance Sheet Cash and short-term Investments Accounts receivable Inventory Other current assets S 630,992 S 745,044 $ 734,693 36,721 301,208 101,788 40,310 46,321 332,452 132,035 367,514 134,620 Total current assets Long lived assets ,141,800 582,832 1,287,488 1,174,410 593,802 647,482 Total assets S 1,724,632 S 1,934,970 1,768,212 Current liabilties Total liabilities Shareholders' equity 432,902 503,445 1221,187 405401 S 387,837 417,141 1,417,184 1,351,071 517,786 Total debt and equity S 1,724,632 S 1,934,970 1,768,212 Income Statement Sales Cost of sales s 3,475,802 S 3,120,065 2,945,294 1,763,143 2,085,480 1,975,471 1,144,594 $ 1,182,151 s 402,038 275,209 $ 317,375 121,644 $ 232,108 S 151,705 S 140,647 Gross margin $ 1,390,322 Earnings before interest and taxes Interest Taxes na 99,930 137,940 Net income Interest paid in cash Taxes paid in cash 80 142,009 182 99,756 161 45,737 Cash Flows Cash flow from operations Capital expenditures Dividends S 499,671 S 398,137 S 380,416 5,904 83,166 3,939 85,592 89,468 85,592 Required: Calculate the following liquidity ratios for Urban Eagle in 2015 and 2016 a Inventory turnover b Current rato O Type here to search

Explanation / Answer

The inventory turnover is calculated as below

Formula for inventory ratio for the year = cost of goods sold for the year / average inventory for the year

Where average inventory =( opening inventory for the year or closing inventory of previous year + closing inventory for the year) / 2

Formula for current ratio is given below

Current ratio = current assets /current ratio

current ratio

2016

2015

times

times

Numerator

current assets

1141800

1287488

2.637548

3.175838

denominator

current liabilities

432902

405401

For calculation of quick ratio we will use the following ratio

Quick ratio = (current assets – inventories – other current assets) / current liabilities

Assumption of current assets taken in quick ratio

·         Normally in current assets taken in quick ratio are cash and cash equivalents and sundry debtors or accounts receivable

Cash flow ratio

We will take the operating cash flow ratio and the formula is given below

Operating cash flow ratio = cash flow from operation /current liabilities

cash flow ratio

2016

2015

times

times

Numerator

cash flow from operations

499671

398137

1.154236

0.982082

denominator

current liabilities

432902

405401

Inventory turnover 2016 2015 opening inventory closing inventory total inventory average inventory times opening inventory closing inventory total inventory average inventory times A B C D=c/2 A B C D=c/2 Numerator cost of sales 2085480 1975471 5.958804 5.908198 denominator average inventory 367514 332452 699966 349983 349983 301208 367514 668722 334361 334361

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