Liquidity Growth and Income Statements

1) Construct the Current Assets section of the Balance Sheet from the following:

Sales (Credit) 1,250,000
Gross Profit ( 15% of Sales )
Inventory Turnover 20x
Current Liabilities 225,000
Working Capital -75,000
Average Collection Period 27 days

2) Given the following information & ratios , assemble a Balance Sheet

Sales ( all on credit ) 2,000,000
Cost of Goods Sold 1,800,000
Stockholders Equity 250,000
Long term debt is 70% of total debt

DSO 18 days
Inventory Turnover 24x
Debt/Equity 2.5x
Current 1x

Assets Liabilities & Stockholders Equity
Cash Total Current Liabilities
A/R Long term Liabilities
Inventory
Total Current Assets Total Liabilities

Net Plant & Equipment Total Stockholders Equity

Total Assets Total Debt & Stockholders Equity

3) Construct the following Balance Sheet from the following:

DSO 10 days
Sales 4,500,000
Inventory Turnover 27x
Cost of Goods Sold 90% of Sales
Current Ratio .8X
Long term debt is equal to two thirds of the total debt
Creditors own 60% of the assets. Assets total 2MM

Assets Liabilities

Cash Current Debt
A/R Long Term Debt
Inv
Total Debt
Total Current

Fixed Assets

Total Assets Net Worth

4) Given the following information , please answer the following for the '02 & '03 years.
As a given , assume the company extends 15 day terms on receivables
and the industry median for Profit margin is 2% ; for current ratio is 1.5x

Use ratios to support your answers

(a) If one of the bank covenants requires a maximum Debt/Equity ratio of 2x; were they in
compliance for the '03 year. If so how much more could they borrow.

(b) Comment on the company's performance relative to their collection of receivables

© Did the company meet their stated goal of a return to shareholders of 20%

d) What would the profit in '02 have been in the budget called for a profit margin of 4.5%

e) Comment on the Company's Liquidity position

ABC Company
Income Statement
For the years ended December 31 , 2002 & December 31,2003

31/12/2002 31/12/2003

Sales 5,000,000 5,500,000
COGS 4,250,000 4,675,000
Gross Profit 750,000 825,000
S & G Exp 500,000 550,000
Depreciation 50,000 75,000
EBIT 200,000 200,000
Interest 25,000 20,000
EBT 175,000 180,000
Gain /Loss on sale of Assets 0 -150,000

Taxes 70,000 12,000
EAT 105,000 18,000
Dividends 1,000 1,000

ABC Company
Balance Sheet

31/12/2002 31/12/2003

Current Assets:
Cash 125,000 25,000
A/R 225,000 675,000
Inventory 100,000 150,000
Total Current Assets 450,000 850,000

Net Plant & Equipment 500,000 450,000

Total Assets 950,000 1,300,000

Current Liabilities
A/P 200,000 250,000
Accrued Expenses 100,000 50,000
Total Current Liabilities 300,000 300,000

Long term Liabilities 325,000 558,000

Total Liabilities 625,000 858,000

Stockholders Equity
Common Stock 10,000 30,000
Capital in excess of Par 65,000 145,000
Retained Earnings 250,000 267,000
Total Stockholders Equity 325,000 442,000

Total Liabilties & Stockholders Equity 950,000 1,300,000