Explore BrainMass

Explore BrainMass

    Susie's Cakes by Design: Financial/Ratio Analysis and Commentary

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Given the following financial information (balance sheet, income statement, and historical and industry averages), analyze the company's overall financial situation. Base your analysis on these financial statements and financial ratios.

    1. Calculate 13 financial ratios as follows:
    Profitability Ratios (3 ratios)
    Asset Utilization Ratios (5 ratios)
    Liquidity Ratios (2 ratios)
    Debt Utilization Ratios (3 ratios)

    2. Write a narrative of one or two paragraphs on your assessment of the company's ratios compared to industry averages.

    Susie's Cakes by Design
    Balance Sheet
    December 31, 2007

    Assets

    Current Assets:
    Cash 200,000
    Marketable Securities 50,000
    Accounts Receivable 800,000
    Inventories 950,000
    Total Current Assets 2,000,000
    Gross Fixed Assets at Cost 12,000,000
    Less Accumulated Depreciation 3,000,000
    Net Fixed Assets 9,000,000
    Other Assets 1,000,000
    Total Assets 12,000,000

    Liabilities and Stockholder's Equity

    Current Liabilities:
    Accounts Payable 900,000
    Notes Payable 200,000
    Accruals 100,000
    Total Current Liabilities 1,200,000
    Long term debt including financial leases 3,000,000
    Stockholder's Equity:
    Preferred Stock (25,000 shares, $2 dividend) 1,000,000
    Common Stock (200,000 shares @ $3 par) 600,000
    Excess Paid in Capital 5,200,000
    Retained Earnings 1,000,000
    Total Stockholder's Equity 7,800,000
    Total Liabilities and Stockholder's Equity 12,000,000
    Susie's Cakes by Design
    Income Statement
    Year Ending December 31, 2007

    Sales Revenue 10,000,000
    Less: Cost of Goods Sold 7,500,000
    Gross Profit 2,500,000
    Less: Operating Expenses
    Selling Expenses 300,000
    G & A Expenses 650,000
    Lease Expense 50,000
    Depreciation Expense 200,000
    Total Operating Expenses 1,200,000
    Operating Profit 1,300,000
    Less Interest Expense 200,000
    Net Profit Before Taxes 1,100,000
    Less: Taxes (40%) 440,000
    Net Income 660,000

    Preferred Stock Dividends Paid 50,000
    Total Earnings Available to Common Stockholders 610,000

    Historical and Industry Averages
    Ratios Actual 2006 Actual 2007 Industry Avg

    Net Working Capital 760,000 720,000 1,600,000
    Current Ratio 1.40 1.55 1.85
    Quick Ration .92 1.05 1.28
    Inventory Turnover 9.52 9.21 8.60
    Average Collection Period 45.0 days 36.4 days 35 days
    Average Payment Period 58.5 days 60.8 days 45.8 days
    Debt-Equity Ratio .25 .27 .39
    Times Interest Earned Ratio 8.2 7.3 8.0
    Gross Profit Margin .30 .27 .25
    Operating Profit Margin .12 .12 .10
    Net Profit Margin .067 .067 .058
    Return on Total Assets .049 .054 .043
    Return on Equity .066 .073 .072
    Earnings Per Share 1.75 2.20 1.50.

    © BrainMass Inc. brainmass.com June 4, 2020, 12:15 am ad1c9bdddf
    https://brainmass.com/business/financial-ratios/susies-cakes-design-financial-ratio-analysis-commentary-327594

    Solution Preview

    See the attachment.

    Financial analysis:

    The current ratio of the company for the financial year 2007 is 1.66 which shows there is improvement in the liquidity position of the company compared to previous year. However, the current ratio is lesser than the industry average of 1.85.

    The quick ratio of the company is .875 which is lesser than the quick ratio of previous financial year and also it is lesser than the industry average of 1.28 which means the company has low short term solvency and huge stock of inventory. The company needs to improve its quick ratio.

    Average collection period of the company for the year 2007 is 29.2 days which is lesser than the average collection period of previous years and also of the ...

    Solution Summary

    Susie's Cakes by Design is discussed and the financial/ratio analysis and commentary is provided.

    $2.19

    ADVERTISEMENT