This exercise asks you to calculate Financial Ratios for Colorado Ricardo Mountain Bikes.
The Scenario: Colorado Ricardo Mountain Bikes
Colorado Ricardo Mountain Bikes was founded by Ricardo Francisco, a keen off-road cyclist who grew frustrated with bikes breaking down under the strain of the Colorado mountains. After years of trial and error, he built a bike tough enough to survive the terrain and named it the “Colorado Ricardo”. Word spread quickly among local riders, and Ricardo gave up his day job to build and sell bikes full-time from a small workshop outside Denver.
This year, Colorado Ricardo sold 4,000 bikes at $1,200 each, down from a peak of around 10,000 bikes a year. Each bike costs $700 to build, and the business carries $1,800,000 a year in fixed costs, giving an operating profit of $200,000. At the year end it held $500,000 in cash, up from $400,000 at the start of the year.
Colorado Ricardo’s current assets total $1,500,000 and current liabilities total $800,000. Its long-term loan is $1,200,000 and its equity is $2,500,000. Revenue for the year was $4,800,000 and operating profit was $200,000.
Once you have drafted your own answer, compare it with Marketing Teacher’s suggested answer.
