Himalaya Tea Company has provided you the following financial statements along with the relevant industry average ratios. Balance Sheet as on…
BBS Fundamentals of Financial Management · 2082 · Solved Question with Answer
Himalaya Tea Company has provided you the following financial statements along with the relevant industry average ratios.
Balance Sheet as on December 31, 20
| Accounts payable | Rs 80,000 | Cash | Rs. 50,000 |
| Notes payable | 60,000 | Marketable securities | 40,000 |
| Other current liabilities | 40,000 | Account receivables | 100,000 |
| Inventories | 200,000 | ||
| Long term debt | 100,000 | Fixed assets | 350,000 |
| Common stock | 200,000 | Accumulated depreciation | (90,000) |
| Retained earnings | 170,000 | ||
| Total liabilities and equities | Rs 650,000 | Total assets | Rs. 650,000 |
Income statement for the year ended December 31, 2024
| Sales revenue | Rs 1,500,000 |
| Less: Cost of goods sold | 1,050,000 |
| Gross profit | Rs 450,000 |
| Less: Operating expenses | 182,000 |
| Earnings before interest & taxes | Rs 268,000 |
| Less: Interest expenses | 18,000 |
| Earnings before taxes | Rs 250,000 |
| Less: Tax at 40% | 100,000 |
| Net Income after taxes | Rs 150,000 |
Industry average
Current ratio = 2 times
Quick ratio = 1 time
Total assets turnover = 3 times
Profit margin = 3%
Times interest earned ratio = 7 times
Return on assets = 9%
Return on equity = 12.9%
a. Calculate the liquidity, turnover and profitability ratios for the Himalaya Tea Company as indicated above.
b. Assess the strengths and weaknesses of financial position of the company based on above ratios.