food inventory turnover and accounts receivable turnover also decrease (longer average collection period and average sale period). It may mean that too much or more money is tied up in inventory and accounts receivable, not earning further income. (4) From the stockholder’s point of view, is the profitability of the operation improving or not? 2004 $875,400 x 9.72% = $85351.5 2005 $881,900 x 9.51% = $83868.69 2006 $879,300 x 8.74% = $769058.82 Less and less, not improving. The profitability of the operation does not improve from the stockholder’s point of view. (5) If the restaurant wished to expand and borrow long-term funds to do so, would it be easier for them to find a lender now than three years ago? It would not be easier now. Each dollar of investment carries more debts three years ago. However, now it gets less. The bank wants the company to use the money borrowed in operations to earn further profits, but not paying back the liabilities (The bank does not care others only if you pay back). (6) Has the restaurant been using the leverage to the advantage of the stockholders over the period? * Same as Q5 No, it has not, because of higher value of debt-to-equity, higher degree of leverage, but the value gets lower from time to time. The stockholders would like to use the money borrowed in operations to earn profits; dividends; more money for each shareholder (7) Is the total dollar amount of the Accounts receivable increasing, decreasing, or remaining constant, over the three years? accounts receivable turnover = Revenue / Average accounts receivable Average accounts receivable = Revenue / accounts receivable turnover 2004 $875,400 / 29 = $30186.21 2005 $881,900 / 24 = $35745.83 6fb30febb8f91cac3b07e16dc670a7904a173933.docx Page 2 of 3
2006 $879,300 / 19 = $46278.95 Yes, increasing. 6fb30febb8f91cac3b07e16dc670a7904a173933.docx Page 3 of 3
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- Spring '20
- Balance Sheet, Generally Accepted Accounting Principles, Current asset