Analyzing financial statement using ratio analysis

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Reference no: EM1314643

Analyzing financial statement using ratio analysis.

Springfield Bank is evaluating Creek Enterprises, which has requested a $4,000,000 loan, to assess the firm's financial leverage and financial risk. On the basis of the debt ratios for Creek, along with the industry averages and Creek's recent financial statements (on the facing page), evaluate and recommend appropriate action on the loan request.

Creek Enterprises Income Statement for the Year Ended December 31, 2006
Sales revenue		$30,000,000
Less: Cost of goods sold		21,000,000
Gross profits		$ 9,000,000
Less: Operating expenses
Selling expense	$3,000,000
General and administrative expenses	1,800,000
Lease expense	200,000

Creek Enterprises Income Statement for the Year Ended December 31, 2006
Depreciation expense	1,000,000
Total operating expense	6,000,000
Operating profits	$ 3,000,000
Less: Interest expense	1,000,000
Net profits before taxes	$ 2,000,000
Less: Taxes (rate = 40%)	800,000
Net profits after taxes	$ 1,200,000
Less: Preferred stock dividends	100,000
Earnings available for common stockholders	$ 1,100,000

Creek Enterprises Balance Sheet December 31, 2006
Assets	Liabilities and Stockholders' Equity
Current assets	Current liabilities
Cash	$ 1,000,000	Accounts payable	$ 8,000,000
Marketable securities	3,000,000	Notes payable	8,000,000
Accounts receivable	12,000,000	Accruals	500,000
Inventories	7,500,000	Total current liabilities	$16,500,000
Total current assets	$23,500,000	Long-term debt (includes financial leases)b	$20,000,000
Gross fixed assets (at cost)a	Stockholders' equity
Land and buildings	$11,000,000	Preferred stock (25,000 shares,	$ 2,500,000

Reference no: EM1314643

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