Happy Hamburger Company Using Financial Statements

Happy Hamburger Company Using the financial statements for Happy Hamburger Company below

Using the financial statements for Happy Hamburger Company below: 1. Calculate the indicated ratios for Happy Hamburger. 2. Discuss Happy Hamburger’s strengths and weaknesses as revealed by your analysis. 3. Suppose Happy Hamburger doubles its sales as well as its inventories, accounts receivable, and common equity during the year. How would that information affect the validity of your ratio analysis? Happy Hamburger Company Income Statement for the year ending December 31, 20XX Sales 1,607,500 Cost of goods sold 1,392,500 Selling, general and administrative expenses 145,000 Earnings before interest and taxes (EBIT) 70,000 Interest expense 24,500 Earnings before taxes (EBT) 45,500 Federal and state income taxes (40%) 18,200 Net Income 27,300 Happy Hamburger Company Balance Sheet as of December 31, 20XX Assets Liabilities and Shareholder Equity Cash 80,500 Accounts payable 132,000 Accounts Receivable 334,500 Current portion of debt 84,000 Inventories 240,000 Other current liabilities 114,000 Total current assets 655,000 Total current liabilities 330,000 Net fixed assets 292,500 Long-term debt 256,500 Total assets 947,500 Total Liabilities 586,500 Common equity 361,000 Total Liabilities & Equity 947,500 Happy Industry Hamburger Average Current ratio 2.2 Days sales outstanding (based on 365 day year) 36 days Inventory turnover 6.7 Fixed asset turnover 12.1 Total asset turnover 3.00 Return on sales 1.20% Return on assets 3.60% Return on equity 9.00% Debt ratio 55% 1 Background Social Security Administration keeps track of the names of both boys and girls born in the United States. The goal of this assignment is to find the most popular boy name and a girl name for each of these years. You will be provided with a file that contains data from 1880 to 2008 for both genders. This file has four columns: year, name, percent and gender. The percent column represents the percentage of babies born that year who had that name. The rows of the file are randomly shuffled. 2 Output You’re required to analyze this file using Python and report back the following: 1. The most popular boy name for each year between 1880 and 2008. 2. The most popular girl name for each year between 1880 and 2008. 3. The most popular name across all these years for both boys and girls based on the percentage of the population that has had that name. 2.1 Grading Criteria This assignment carries 10 points of your assignment grade. You will be graded on logic, comments, whether the code runs or not and the output. You are expected to do this work on your own. You may use any code provided in the class and modify it to apply to this assignment. 2.2 Submission You have the option to use 2 extra days to finish this assignment unless you have already used two extensions. Submit only .py file(s). Please add a README section in your file as comments to let me know how to successfully run your code if there are any special instructions.

Paper For Above instruction

Financial Ratio Analysis of Happy Hamburger Company and Its Implications

The financial health of a company is crucial for understanding its operational efficiency, profitability, liquidity, and solvency. Using the provided financial statements of Happy Hamburger Company, a comprehensive ratio analysis reveals both the strengths and weaknesses that are fundamental for stakeholders, including management, investors, and creditors, to make informed decisions.

Liquidity Ratios

The current ratio, calculated as current assets divided by current liabilities, stands at 655,000 / 330,000 ≈ 1.98. This is slightly below the industry average of 2.2, indicating that Happy Hamburger might face liquidity constraints in meeting short-term obligations if they were immediate. The company's relatively high cash position of 80,500 enhances liquidity, but the moderate current ratio suggests room for improvement. Additionally, the days sales outstanding (DSO) of 36 days, based on receivables, indicates efficient collection processes compared to the industry average of 36 days, implying timely collections.

Asset Management Ratios

Inventory turnover is calculated as cost of goods sold divided by inventories, which yields 1,392,500 / 240,000 ≈ 5.80, slightly below the industry average of 6.7, suggesting the company holds inventory for a longer period than its competitors. The fixed asset turnover ratio is 12.1, indicating efficient use of fixed assets, and the total asset turnover ratio of 3.00 demonstrates how effectively assets generate sales, aligning well with industry standards.

Profitability Ratios

The return on sales (ROS) at 1.7% (27,300 / 1,607,500) exceeds the industry average of 1.2%, indicating better profit margins. Return on assets (ROA) at 3.6% and return on equity (ROE) at 9% further suggest profitability, though these margins are modest. The company's net income, relative to total assets and equity, showcases an ability to generate returns, but there's scope for increasing profitability through cost control or revenue growth strategies.

Leverage and Solvency Ratios

The debt ratio of 55% indicates that the company finances just over half of its assets through debt, aligning with industry averages but also highlighting a moderate level of financial leverage. Long-term debt of 256,500 compared to total assets reflects the company's reliance on borrowing, which could be a risk if earnings decline or interest rates rise. Nonetheless, the company maintains a balanced structure that sustains operational stability.

Implications of Changes in Financial Metrics

If Happy Hamburger doubles its sales, inventories, accounts receivable, and common equity, the current ratios and turnover ratios might be affected. For example, doubling inventories and receivables would increase current assets, potentially inflating the current ratio and other liquidity metrics but might also obscure actual operational efficiency. Similarly, doubling sales could lead to scale benefits, but the proportional increase in assets might not always produce higher margins, depending on cost management. Therefore, while ratio analysis remains useful, the proportional growth can distort ratios, making them less reliable for assessing financial health during such expansions. Adjustments for scale and analyzing per-unit metrics become necessary to maintain accurate evaluations.

Strengths and Weaknesses

Overall, Happy Hamburger displays strengths in profitability relative to sales and efficient asset utilization, supported by favorable fixed asset turnover and return on sales. Weaknesses include slightly below-average liquidity ratios and inventory turnover, indicating potential areas for managing cash flow and inventory more effectively. The company's leverage level is moderate but warrants careful monitoring in light of market fluctuations and interest rate changes. To sustain growth, management should focus on enhancing liquidity and operational efficiency while using leverage judiciously.

Conclusion

The ratio analysis underscores Happy Hamburger's solid profitability and effective asset utilization but also highlights areas where liquidity and inventory management can be improved. In the context of growth and scaling, caution should be exercised to ensure ratios are interpreted with adjustments for proportional increases, avoiding over- or underestimating financial health. Strategic enhancements in working capital management and cost efficiencies will further strengthen the company's financial position and support long-term sustainability.

References

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