Ratio Analysis The following information was taken from Division Manufacturing’s December 31st trial balances for this year and the previous year. This Year Previous Year Accounts receivable $14,000 $17,000 Accounts payable 22,000 15,000 Cost of goods sold 158,000 124,000 Sales 346,000 239,000 Sales returns 17,000 10,000 Retained earnings 32,000 16,000 Dividends declared and paid 3,000 2,000 Operating income 25,000 18,000 Net income 19,000 18,000 Required: 1. Calculate the gross profit margin and operating margin percentage for this year. Round your answers to two decimal places. This Year Gross profit margin percentage fill in the blank 1 % Operating margin percentage fill in the blank 2 % 2. Assuming that all of the operating expenses are fixed (or, won’t change as sales increase or decrease), what will be the operating margin percentage if net sales increase by 30%? Round your answer to two decimal places. Operating margin percentage fill in the blank 3 %
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Ratio Analysis
The following information was taken from Division Manufacturing’s December 31st
| This Year | Previous Year | |||
| Accounts receivable | $14,000 | $17,000 | ||
| Accounts payable | 22,000 | 15,000 | ||
| Cost of goods sold | 158,000 | 124,000 | ||
| Sales | 346,000 | 239,000 | ||
| Sales returns | 17,000 | 10,000 | ||
| Retained earnings | 32,000 | 16,000 | ||
| Dividends declared and paid | 3,000 | 2,000 | ||
| Operating income | 25,000 | 18,000 | ||
| Net income | 19,000 | 18,000 |
Required:
1. Calculate the gross profit margin and operating margin percentage for this year. Round your answers to two decimal places.
| This Year | |
| Gross profit margin percentage | fill in the blank 1 % |
| Operating margin percentage | fill in the blank 2 % |
2. Assuming that all of the operating expenses are fixed (or, won’t change as sales increase or decrease), what will be the operating margin percentage if net sales increase by 30%? Round your answer to two decimal places.
| Operating margin percentage | fill in the blank 3 % |
Formula used:
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