Exercise – Financial Ratios

Financial Ratios

Jumpys is a neighborhood restaurant famous for its jolting coffee. Named for its owner Jumpy Johnson, the restaurant specializes in a breakfast menu that has many loyal fans among the locals. But every since Jumpys neon dancing coffee cup sign went up, the owner has wanted to expand in an even bigger way.

2. Jumpys Current Ratio is 2.29:1, True or False?

3. Jumpys Ownership Ratio is 29.2:1, True or False?

4. Jumpys Profitability Ratio is Zero, True or False?

Jumpys is located in a region that holds a round of championship events at the same time every year. Johnson noticed that increased promotions during those events brought a tremendous influx of new customers to the advertisers. He is convinced that once those new customers visit Jumpys, they will be captured forever.

In prior years Johnson has not been prepared financially to capitalize on the event, but recently he has been working closely with his accountant to monitor the restaurants financial health with the idea of seeking a loan. His accountant has provided the following summary of pertinent company financial information:

Current Assets: $32,000

Current Liabilities: $14,000

Net Profit: $15,000

Net Sales: $100,000

Net Worth: $34,000

Total Debt: $18,000

Answer the following questions:

1. Lenders and investors use financial ratios to determine which of the following (multiple choice):

(a) Company License Renewal Decisions
(b) Actuary Liabilities
(c) Towing Costs
(d) Identify good candidates for financial assistance.