Reference no: EM13571260
The financial statements for the Bao Corporation are given below:
Bao Corporation
Comparative Balance Sheets
December 31, 2015, and 2014
2015
2014
Assets
Current assets:
Cash
$ 1,900 $ 1,300
Accounts receivable net
9,100
7,300
Inventory
11,300
9,100
Prepaid expenses
560
250
Total current assets
22,860
17,950
Property and equipment:
Land
86,000
86,000
Buildings and equipment, net
48,600
52,000
Total property and equipment
134,600
138,000
Total assets
$157,460 $155,950
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable
$ 17,600 $ 21,000
Accrued expenses
1,620
4,430
Notes payable, short term
540
220
Total current liabilities
19,760
25,650
Long-term liabilities:
Bonds payable
5,300
5,300
Notes payable
34,400
35,000
Total liabilities
59,460
65,950
Stockholder's equity:
Common stock
11,000
11,000
Additional paid-in capital
19,000
19,000
Total paid-in capital
30,000
30,000
Retained earnings
68,000
60,000
Total stockholder's equity
98,000
90,000
Total liabilities and stockholder's equity
$157,460 $155,950
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Bao Corporation
Comparative Income Statement
For the Year Ended December 31, 2015, and 2014
2015
2014
Sales
$130,000 $111,000
Cost of goods sold
67,000
61,000
Gross margin
63,000
50,000
Operating expenses:
Selling expenses
24,500
20,000
Administrative expenses
17,500
14,600
Total operating expenses
42,000
34,600
Income from operations
21,000
15,400
Interest expense
5,600
4,700
Income before taxes
15,400
10,700
Less income taxes
6,160
4,280
Net income
$ 9,240 $ 6,420
Required
a.Present the balance sheet with each account balance as a percent of total assets.
b.Present the income statement with each balance as a percent of sales.
c.Comment on the results of any significant findings.
d.What types of issues does the company seem to be facing?
e.What suggestions do you have for the Bao Corporation?
PROBLEM 14-14. Horizontal Analysis [LO 1, 2]
Refer to the financial data for Bao Corporation
in Problem 14-13. Using these financial statements, complete the following steps.
Required
a.Prepare a horizontal analysis for the balance sheet.
b.Prepare a horizontal analysis for the income statement.
c.Comment on the results of any significant findings.
d.What types of issues does the company seem to be facing?
e.What suggestions do you have for the Bao Corporation?
PROBLEM 14-15. Comprehensive Ratio Analysis [LO 5, 6, 7]
Refer to the financial data for the
Bao Corporation in Problem 14-13.You have just been hired as a loan officer at the Sussex Bank.Your supervisor has given you a file containing a request from Bao Corporation for a $30,000 five-yea loan. Use the financial statements for the Bao Corporation to answer the questions that follow. Lui Chun, who just a year ago was appointed president of Bao Corporation, informs you that although the company has had some problems in the past, it is turning things around, as evidenced by the 17 percent increase in sales and the improved earnings results between last year and this year.
Ms. Chun feels that, with her leadership and the improved technology (which will come from the equip- ment that the $30,000 will allow the company to purchase), profits will be even stronger in the future mWanting to succeed in your first assignment, you decide to gather all the necessary information for a complete analysis. You determine that the following ratios are typical for the indus- try in which Bao Corporation operates:
Current ratio
2.6 to 1
Acid-test (quick) ratio
1.2 to 1
Accounts receivable turnover 8.5 times
Inventory turnover
6.2 times
Return on assets
12.1%
Debt-to-equity ratio
0.68 to 1
Times interest earned
6.8
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Required
a.Compute each of the above ratios for Bao Corporation.
b.Summarize the results of these ratios.
c.Based on this analysis, would you recommend that the loan be approved?