Below are the Income Statement and Balance Sheet for Longborg Corporation for the years ended 2020 and 2021. Calculate the profitability ratios in the table to the right for the year ended 2021. Longborg Corporation Comparative Income Statement For the Years Ended December 31, 2021 and 2020 2021 2020 Amount Amount Sales $60,200,300 $52,410,500 Cost of goods sold 44,850,700 39,050,800 Gross profit 15,349,600 13,359,700 Selling expenses 2,725,500 2,860,600 Administrative expenses 2,850,300 2,575,400 Total operating expenses 5,575,800 5,436,000 Income from operations 9,773,800 7,923,700 Interest Expense 385,200 425,600 Other income 125,000 105,000 Income before income tax 9,513,600 7,603,100 Income tax expense 3,329,800 2,661,000 Net income $6,183,800 $4,942,100 Longborg Corporation Comparative Balance Sheet As of December 31, 2021 and 2020 2021 2020 Cash $5,590,800 $4,597,100 Accounts receivable, net 9,254,800 8,434,800 Inventories 3,003,800 2,579,300 Prepaid Expenses 1,162,800 905,800 Total current assets 19,012,200 16,517,000 Fixed assets, net 23,908,900 23,013,100 Total assets $42,921,100 $39,530,100 Accounts payable $6,038,800 $6,025,700 Accrued expenses 1,918,200 1,485,600 Other current liabilities 2,842,700 5,421,200 Total current liabilities 10,799,700 12,932,500 Long-term debt 14,149,300 14,809,300 Common stock 1,500,000 1,500,000 Retained earnings 16,472,100 10,288,300 Total liabilities & equity $42,921,100 $39,530,100 Note: Enter the calculated values as a formula (example: =S11/U11) Ratio Numerator ÷ Denominator = Calculated Value 1. Gross Profit Ratio 2. Operating Profit Ratio 3. Net Profit Ratio 4. Return on Total Assets (ROA) 5. Return on Stockholders' Equity (ROE)
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.
| Below are the Income Statement and |
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| for the years ended 2020 and 2021. Calculate the profitability ratios in the table to the right | ||||||||
| for the year ended 2021. | ||||||||
| Longborg Corporation | ||||||||
| Comparative Income Statement | ||||||||
| For the Years Ended December 31, 2021 and 2020 | ||||||||
| 2021 | 2020 | |||||||
| Amount | Amount | |||||||
| Sales | $60,200,300 | $52,410,500 | ||||||
| Cost of goods sold | 44,850,700 | 39,050,800 | ||||||
| Gross profit | 15,349,600 | 13,359,700 | ||||||
| Selling expenses | 2,725,500 | 2,860,600 | ||||||
| Administrative expenses | 2,850,300 | 2,575,400 | ||||||
| Total operating expenses | 5,575,800 | 5,436,000 | ||||||
| Income from operations | 9,773,800 | 7,923,700 | ||||||
| Interest Expense | 385,200 | 425,600 | ||||||
| Other income | 125,000 | 105,000 | ||||||
| Income before income tax | 9,513,600 | 7,603,100 | ||||||
| Income tax expense | 3,329,800 | 2,661,000 | ||||||
| Net income | $6,183,800 | $4,942,100 | ||||||
| Longborg Corporation | ||||||||
| Comparative Balance Sheet | ||||||||
| As of December 31, 2021 and 2020 | ||||||||
| 2021 | 2020 | |||||||
| Cash | $5,590,800 | $4,597,100 | ||||||
| 9,254,800 | 8,434,800 | |||||||
| Inventories | 3,003,800 | 2,579,300 | ||||||
| Prepaid Expenses | 1,162,800 | 905,800 | ||||||
| Total current assets | 19,012,200 | 16,517,000 | ||||||
| Fixed assets, net | 23,908,900 | 23,013,100 | ||||||
| Total assets | $42,921,100 | $39,530,100 | ||||||
| Accounts payable | $6,038,800 | $6,025,700 | ||||||
| Accrued expenses | 1,918,200 | 1,485,600 | ||||||
| Other current liabilities | 2,842,700 | 5,421,200 | ||||||
| Total current liabilities | 10,799,700 | 12,932,500 | ||||||
| Long-term debt | 14,149,300 | 14,809,300 | ||||||
| Common stock | 1,500,000 | 1,500,000 | ||||||
| 16,472,100 | 10,288,300 | |||||||
| Total liabilities & equity | $42,921,100 | $39,530,100 | ||||||
| Note: Enter the calculated values as a formula (example: =S11/U11) | ||||||||||||
| Ratio | Numerator | ÷ | Denominator | = | Calculated Value | |||||||
| 1. | Gross Profit Ratio | |||||||||||
| 2. | Operating Profit Ratio | |||||||||||
| 3. | Net Profit Ratio | |||||||||||
| 4. | Return on Total Assets (ROA) | |||||||||||
| 5. | Return on Stockholders' | |||||||||||
| Equity (ROE) | ||||||||||||
The profitability ratios are used to measure the profit earning capacity of the entity, The profitability ratios include gross profit, net profit, return on assets etc. The operating profit ratio measures the income generated through the operations of the company to the revenues. The greater the profitability ratio the better it is for the company.
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