Exercise 5-4: Balance Sheet 2015 2014 Assets Cash $9,000 $7,000 Accounts receiva
ID: 2445772 • Letter: E
Question
Exercise 5-4:
Balance Sheet
2015
2014
Assets
Cash
$9,000
$7,000
Accounts receivable
12,000
9,000
Inventory
18,000
15,000
Long-lived assets (net)
60,000
50,000
Total assets --------------------------------------à
$99,000
$81,000
Liabilities and Shareholders’ Equity
Accounts payable
$16,500
$12,000
Long-term Liabilities
46,000
40,000
Common stock
20,000
20,000
Additional paid-in capital
5,000
5,000
Retained earnings
11,500
4,000
Total liabilities and equity --------------------à
$99,000
$81,000
Income Statement
Sales (all on credit)
$72,000
Less: cost of goods sold
30,000
Gross profit -------------------------------------à
42,000
Operating expenses
12,000
Net income from operations ------------------à
$30,000
Interest expenses
5,000
Net income before taxes ----------------------à
$25,000
Income taxes
8,000
Net Income -------------------------------------à
$16,500
Dividends
$9,000
Per-share market price
$ 36
$ 30
Outstanding common shares
2,000
2,000
a. Compute all relevant ratios for 2015.
b. Prepare common-size financial statements.
c. Evaluate the company’s financial performance and condition
Explanation / Answer
(a) Main Ratios for 2015
Current Ratio = 39000 / 16500 = 2.36
(a) Main Ratios for 2015
Debt-Equity Ratio = 46000 / 36500 = 1.26 : 1
Gross Profit Ratio = 42000 x 100 / 72000 = 58.33 %
Operating Ratio = 42000 x 100 / 72000 = 58.33 %
Net profit Ratio = 16500 x 100 / 72000 = 22.92%
(b) Common Size Balance Sheet
2015
2014
Assets
Amount
Percentage
Amount
Percentage
Current Assets
Cash
9000
9.09
7000
8.64
Account Receivables
12000
12.12
9000
11.11
Inventory
18000
18.18
15000
18.52
Non-Current Assets
Long-lived assets
60000
60.61
50000
61.73
Total Assets
99000
100
81000
100
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payables
16500
16.67
12000
14.81
Non-Current Liabilities
46000
46.46
40000
49.38
Shareholders’ Equity
Common Stock
20000
20.20
20000
24.69
Additional Paid-in-Capital
5000
5.05
5000
6.18
Retained Earnings
11500
11.62
4000
4.94
Total Liability and Shareholders’ Equity
99000
100
81000
100
(c) As per financial statements and ratio analysis, it is clear that company is running on profit and liquidity position is also quite well but some points are notable;
2015
2014
Assets
Amount
Percentage
Amount
Percentage
Current Assets
Cash
9000
9.09
7000
8.64
Account Receivables
12000
12.12
9000
11.11
Inventory
18000
18.18
15000
18.52
Non-Current Assets
Long-lived assets
60000
60.61
50000
61.73
Total Assets
99000
100
81000
100
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payables
16500
16.67
12000
14.81
Non-Current Liabilities
46000
46.46
40000
49.38
Shareholders’ Equity
Common Stock
20000
20.20
20000
24.69
Additional Paid-in-Capital
5000
5.05
5000
6.18
Retained Earnings
11500
11.62
4000
4.94
Total Liability and Shareholders’ Equity
99000
100
81000
100