Liz Marett is the chief financial officer for Fulton Restaurants. She delivered the following comments in a recent conference call with analysts that follow the company:
"20X5 was another excellent year. Net income was a record setting $10,000,000. Food Revenue reflected 60% of total revenue with the remainder being beverage and other. We maintained our overall profit margin at the historic 10% level. This occurred despite an increase in food costs that lowered our food department gross profit to 55%. We are proud that we continue to maintain a healthy balance sheet that is free of any liabilities. All of our financing continues to be provided by our common and preferred shareholders. Our beginning of year equity of $75,000,000 was sufficient to fund our capital needs, and no additional shares were issued this year. Our shareholders have again received their full $2,000,000 in dividends for the year. The remaining earnings have been reinvested in the company."
Use profitability ratios to determine Fulton's:
a)Total sales
b)Food Revenue
c)food cost of goods sold
d)net income
To determine the answers to the questions based on the information provided, we can use the profitability ratios.
a) Total Sales:
To find the total sales, we need to calculate the revenue for Fulton Restaurants. From the information given, we know that food revenue represents 60% of the total revenue. Therefore, we can use the formula:
Total Revenue = Food Revenue / Percentage of Food Revenue
Total Revenue = $10,000,000 / 0.60
Total Revenue = $16,666,667
Therefore, the total sales for Fulton Restaurants is $16,666,667.
b) Food Revenue:
We know that food revenue represents 60% of the total revenue. From the information provided, we can again use the formula:
Food Revenue = Total Revenue * Percentage of Food Revenue
Food Revenue = $16,666,667 * 0.60
Food Revenue = $10,000,000
Therefore, the food revenue for Fulton Restaurants is $10,000,000.
c) Food Cost of Goods Sold:
From the information provided, we know that the food department gross profit is 55% and the overall profit margin is 10%. This means that the cost of goods sold for the food department is equal to 100% minus the food department gross profit (55%).
Food Cost of Goods Sold = 100% - Food Department Gross Profit
Food Cost of Goods Sold = 100% - 55%
Food Cost of Goods Sold = 45%
Therefore, the food cost of goods sold for Fulton Restaurants is 45%.
d) Net Income:
The information provided states that the net income for Fulton Restaurants was $10,000,000.
Therefore, the net income for Fulton Restaurants is $10,000,000.