Extra Credit Assignment (50 Points Extra Credit Assignment (50 Points) All stude

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Extra Credit Assignment (50 Points Extra Credit Assignment (50 Points) All students have an opportunity to earn up to 50 points in extra ABC Pharmacy Case study. to 50 points in extra credit by completing the To qualifly for extra credit points, this assignment must be turned in before Friday at 11PM of the last week of regular classes. ABC Pharmacy- What can two new pharmacy owners learn about their business from its financial statements? rchased It has been a little more than two years since Angela Ramirez and Martin Bull pu ABC Pharmacy from Frank Strand, the previous owner and founder, who started the pharmacy in 1963. The two had spent many long hours in the store and had learned many valuable lessons as business owners that they had not had the opportunity to leanm as employees of large chain pharmacies where they had previously worked. Ramirez and Bull just received an e-mail from their accountant that contained the balance sheet and the in the income statement for ABC Pharmacy for the fiscal year that had just ended. The financial statements appear below. Balance Sheet, December 31,2013 Assets Current Assets Cash Accounts receivable Inventory Supplies Other assets Total Current Assets $74,473 $112,730 $224,870 $21,577 $10,202 $443,852

Explanation / Answer

Liquidity Ratio:
1)Current Ratio
=current assets/current liability
=443852/132623
=3.35

2)Quick ratio
=(current assets-inventory)/current liability
=(443852-224870)/132623
=1.65

Leverage Ratio:
1)Debt ratio
=debt/assets
=(132623+264226)/529037
=0.52

2)Debt to net worth ratio:
=debt/net worth
=(132623+264226)/132187
=3

3)Times interest earned ratio
=EBIT/interest expense
=(513719-446712)/24879
=2.69

Operating ratio:

1)Avg inventory turnover ratio
=COGS/inventory
=1882805/224870
=8.37

2)Avg collection period ratio:
=sales/Account receivable
=2396524/112730
=21.26

3)Average payable period ratio:
=purchases/account payable
=1938097/132623
=14.6

4)Net sales to total assets ratio:
=sales/assets
=2396524/529037
=4.53

Profitability Ratio:

1)Net profit to sales ratio

=net income/sales
=41754/2396524
=1.74%

2)Net profit to assets ratio
=net income/assets
=41754/529037
=7.89%

3)Net profit to equity ratio
=net income/equity
=41754/132187
=31.59%

2))Net profit to equity ratio, avg payable ratio,avg collection ratio ,debt ratio are only ratios performed better in this year compared to last year. The gross margin came down many be because o reduction in prices / increase in costs.

3) avg payable ratio,avg collection ratio ,debt ratio are only ratios performed better in this year compared to last competitor. The margin is the big issue and other than this the higher debt will also cause burden on company to pay taxes if in futire sales come down

4)Do cost cutting measures and increase the margin.reduce the debt burden by selling of unwanted assets,

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