Income statementDonna's BoutiqueIncome statementFor the year ended 31st December, 2014Sales revenueTotal sales$78,000Less. Sales returns/allowances$0Net sales revenue$78,000Less cost of goods soldBeginning stock14000Add. Purchases32000Less. Ending stock($18,000)Cost of goods sold($28,000)Gross profit$50,000Operating expensesemployees salaries21400Unpaid invoices16000Payment for operating expenses4000Total operating expenses($41,400)Operating Income$8,600Other income and expensesUncollected invoices24000Withdraw for personal use ($22,000)Net other income and expenses2000NET INCOME$10,600 statement of cash flowsDonna's Boutiquestatement of cash flowsFor period ended 31st December 2014cash flows from operating activities:operating income$8,600net cash from investing activities$32,000Net cash from financing activities0Net change in cash$40,600Beginning cash balance$60,000Ending cash balance$100,600out of the $100600 cash balance, $60000 belonged to Donna, so the ending balance for the business was$100600- $60000= $40600 Balance sheetDonna's BoutiqueBalance sheetFor the period ended 31st December, 2014ASSETSCurrent Assets:Cash60000accounts receivables24000prepaid rent4800inventory28000Total current assets116800non-current assetsEquipment32000total assets$148,800LIABILITIES AND OWNERS EQUITYAccounts payable16000salaries21400Operating expenses4000unearned revenues24000withdraws22000Total liabilities87400Owners equity60000Total liabilities & owners equity$147,400 financial ratiosReturn on owners equityit is a profitability ratio that measures the ability of a firm to generate profits from its shareholders investment in the company.ROE= Net income/Shareholder equity10600/6000= 0.18operating cash flow margin measures what percentage of total revenues is made by operating income. The ratio shows what proportion of revenues is available to cover non-operating costsoperating cash flow margin= operating income/Net sales8600/78000= 0.110.11*100= 11%cash return on total assetsit measures the efficieny of the business in using its assets to generate net income.Return on assets= Annual net income/ Average total assets10600/ (148800/2)= 0.140.14*100= 14%Higher value of return on assets shows that the business is more profitableCurrent ratioit measures a firm's ability to pay off its short-term liabilities with its current assets.current ratuo= current assets/ current liabilities116800/87400= 1.34A higher current ratio is always more favorable than a lower current ratio because it shows the company can more easily make current debt payments.Debt ratiomeasures a firm's total liabilities as a percentage of its total assetstotal liabilities/ total assets87400/148800= 0.59Donna's Boutique has a reasonable debt ratio.cash return on owner equityIt is the ratio of net income of a business during a year to its stockholders' equity during that year. It shows net income as percentage of shareholder equitycash return on owner equity= annual income/ average stock holder e.

1. Income statementDonna's BoutiqueIncome statementFor the
year ended 31st December, 2014Sales revenueTotal
sales$78,000Less. Sales returns/allowances$0Net sales
revenue$78,000Less cost of goods soldBeginning
stock14000Add. Purchases32000Less. Ending
stock($18,000)Cost of goods sold($28,000)Gross
profit$50,000Operating expensesemployees
salaries21400Unpaid invoices16000Payment for operating
expenses4000Total operating expenses($41,400)Operating
Income$8,600Other income and expensesUncollected
invoices24000Withdraw for personal use ($22,000)Net other
income and expenses2000NET INCOME$10,600
statement of cash flowsDonna's Boutiquestatement of cash
flowsFor period ended 31st December 2014cash flows from
operating activities:operating income$8,600net cash from
investing activities$32,000Net cash from financing
activities0Net change in cash$40,600Beginning cash
balance$60,000Ending cash balance$100,600out of the $100600
cash balance, $60000 belonged to Donna, so the ending balance
for the business was$100600- $60000= $40600
Balance sheetDonna's BoutiqueBalance sheetFor the period
ended 31st December, 2014ASSETSCurrent
Assets:Cash60000accounts receivables24000prepaid
rent4800inventory28000Total current assets116800non-current
assetsEquipment32000total assets$148,800LIABILITIES AND
OWNERS EQUITYAccounts
payable16000salaries21400Operating expenses4000unearned
revenues24000withdraws22000Total liabilities87400Owners
equity60000Total liabilities & owners equity$147,400
financial ratiosReturn on owners equityit is a profitability ratio
that measures the ability of a firm to generate profits from its
shareholders investment in the company.ROE= Net
income/Shareholder equity10600/6000= 0.18operating cash flow
margin measures what percentage of total revenues is made by

2. operating income. The ratio shows what proportion of revenues
is available to cover non-operating costsoperating cash flow
margin= operating income/Net sales8600/78000=
0.110.11*100= 11%cash return on total assetsit measures the
efficieny of the business in using its assets to generate net
income.Return on assets= Annual net income/ Average total
assets10600/ (148800/2)= 0.140.14*100= 14%Higher value of
return on assets shows that the business is more
profitableCurrent ratioit measures a firm's ability to pay off its
short-term liabilities with its current assets.current ratuo=
current assets/ current liabilities116800/87400= 1.34A higher
current ratio is always more favorable than a lower current ratio
because it shows the company can more easily make current
debt payments.Debt ratiomeasures a firm's total liabilities as a
percentage of its total assetstotal liabilities/ total
assets87400/148800= 0.59Donna's Boutique has a reasonable
debt ratio.cash return on owner equityIt is the ratio of net
income of a business during a year to its stockholders' equity
during that year. It shows net income as percentage of
shareholder equitycash return on owner equity= annual income/
average stock holder equity10600/30000= 0.350.35*100= 35%
EXAMPLES WITH MY PROFESSOR IN CLASS