...2... The following transactions occurred during the first 30 days of operatio
ID: 3859340 • Letter: #
Question
...2... The following transactions occurred during the first 30 days of operation of a new services company: January 1 Owners invested Cash of $25,000 January 3 The Company borrowed $20,000 from a bank January 4 Equipment was purchased for $12,000 on account January 5 Office Supplies were purchased for $2600 with Cash January 7 $2500 Cash was spent on advertising to let the public know about the new company January 8 Revenue of $7500 was earned on account January 10 Revenue of $1250 was earned and received as Cash January 11 Revenue of $1000 was earned on account January 13 Paid $750 with a check toward Accounts Payable January 15 Revenue of $6000 was earned on account January 15 Employee wages of $2750 were paid with Cash January 16 Revenue of $4300 was earned and received as Cash January 17 $2500 was spent on advertising with a check January 18 Received $1500 Check (a check is considered cash) to be applied against on account from customer January 19 Revenue of $1600 was earned on account January 20 Paid $750 cash toward Accounts Payable January 21 Equipment was purchased for $8500 Cash January 22 Revenue of $10,000 was earned and received as Cash January 23 Paid $1000 Check toward bank loan January 24 Paid Utilities bill of $1000 with Check January 25 Revenue of $3000 was earned on account January 26 $2500 Cash was spent on advertising January 27 Paid $800 toward Accounts Payable January 28 Revenue of $9100 was earned and received as Cash January 29 Employee Wages of $2750 were paid with Cash January 30 Paid $1000 Cash toward bank loan • Prepare a short written analysis of your company’s financial performance during its first month of operations. Include quantitative data in your summary. A paragraph or two is expected
Explanation / Answer
Income Statement for the month ended January 31,...
Balance Sheet as of January 31,....
Operating profit margin = 32,250 / 43,750 x 100 = 73.7% ( Not considering depreciation, interest expense or taxes)
Current ratio = Current assets / Current liabilities = 64,450 / 9,700 = 6.64
Debt -to-equity ratio = Total liabilities / Total equity = 37,700 / 57,250 = 0.66
Debt asset ratio = 37,700 / 84,950 x 100 = 44.38%
Return on equity = Profit margin x Asset turnover x Equity Multiplier = 73.7 x 0.52 x 1.48 = 56.72%
By the end of the first month of operations, the initial owned and borrowed capital of $ 45,000 have been tranlated into total assets of $ 84,950, which is excellent going. Operating income of 74% has been generated before depreciation expense, interest expense and taxes, which is quite impressive. The current ratio is very robust, indicating that the company can handle increased current liabilities without any strain. The business is sitting on $ 44,250 of cash, thereby indicating that large dividends may be in the offing for the owners.
Financial management is all about creating value for the stockholders by maximization of stockholder wealth. The stockholders had initially contributed $ 25,000. At the end of the first month of operations, their wealth has more than doubled and has increased by $ 32,250. The most positive aspect in the business is that most of the revenues are being rendered for cash, and a very small proportion on account.
$ $ Revenues earned 43,750 Less expenses Wages expense 5,500 Advertising expense 5,000 Utilities bill 1,000 11,500 EBITDA 32,250Related Questions
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