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    Analyzing Financial Statements for Planning and Cost

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    Write a memo to your superior analyzing the performance of SAC for 2010 and 2011. This analysis should be based on the information found in the consolidated financial statements.
    Your memo should include the following financial ratios and a comparison of the ratios over the two-year period:
    •current ratio
    •debt-to-equity ratio
    •inventory turnover (use ending inventory)
    •accounts receivable turnover (use ending accounts receivable balance)
    •gross margin percentage
    Show your calculations for each ratio and comment on SAC's performance for each ratio. Discuss other tools/methods that could be utilized to analyze the financial performance of a company.

    Sparklin Automotive Company
    Comparative Income Statements
    For Years Ended December 31, 2010 and 2011
    (dollars in thousands)
    Increase (Decrease)
    2010 2011 Amount Percent
    Sales (on account) $155,000 $168,000 $13,000 8%
    Cost of Goods Sold 78750 99620 $20,870 27%
    Gross Margin 76,250 68,380 -$7,870 -10%

    Operating Expenses:
    Selling Expenses 4,200 1,560 -$2,640 -63%
    Administrative Expenses 3,500 3,000 -$500 -14%
    Total Operating Expenses 7,700 4,560 -$3,140 -41%

    Net Operating Income 68,550 63,820 -$4,730 -7%
    Interest Expense 20,565 19,146 -$1,419 -7%

    Net Income Before Taxes 47,985 44,674 -$3,311 -7%
    Less Income Taxes (34%) 16,315 15,189 -$1,126 -7%
    Net Income $31,670 $29,485 -$2,185 -7%

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    Solution Preview

    Here is more explanation
    Ratios help us in understanding the performance of the organization. It is the relationship between two or more financial figures. It is used for:
    1) To identify the strengths and weaknesses of the organization.
    2) To evaluate the performance of the organization.
    3) To facilitate the comparison.
    4) To do benchmarking .
    5) To control the performance of the organization.

    Let us evaluate the ratios of SAC:
    1) Current ratio= Current ...

    Solution Summary

    Solution helps in providing financial ratios and a comparison of the ratios over the two-year period