Discuss whether gregs graphics liquidity is adequate

Assignment Help Financial Accounting

Reference no: EM13940916

USING COMMON SIZE STATEMENTS

Greg's Graphics Company owns and operates a small chain of sportswear stores located near colleges and universities. Greg's Graphics has experienced significant growth in recent years. The following data are available for Greg's Graphics:

Greg's Graphics Company Comparative Statements of Income
	Year Ended December 31,
(In thousands)	2009	2008	2007
Sales	$54,922	$42,893	$35,526
Cost of goods sold	32,936	25,682	21,721
Gross margin	$21,986	$17,211	$13,805
Other income, net	397	439	421
	$22,383	$17,650	$14,226
Costs and expenses:
Selling and administrative	$17,857	$14,665	$12,754
Interest	1,356	863	622
	$19,213	$15,528	$13,376
Income before income taxes	$ 3,170	$ 2,122	$ 850
Provision for income taxes	885	746	623
Net income	$ 2,285	$ 1,376	$ 227

Greg's Graphics Company Comparative Balance Sheets (In thousands)
ASSETS	December 31,
	2009	2008	2007
Current assets: Cash Accounts receivable Inventories Total current assets Property, plant, and equipment (net) Other assets Total assets	$ 372 4,798 5,673 $10,843 4,912 592 $16,347	$ 301 3,546 4,521 $ 8,368 3,541 592 $12,501	$ 245 3,369 3,389 $ 7,003 2,937 552 $10,492
LIABILITIES AND	STOCKHOLDERS'	EQUITY
Current liabilities: Short-term notes payable Accounts payable Total current liabilities Long-term debt Total liabilities Paid-in capital Retained earnings Total stockholders' equity Total liabilities and stockholders' equity	$ 4,314 1,256 $ 5,570 3,241 $ 8,811 $ 4,367 3,169 $ 7,536 $16,347	$ 1,731 987 $ 2,718 3,234 $ 5,952 $ 4,598 1,951 $ 6,549 $12,501	$ 463 783 $ 1,246 3,266 $ 4,512 $ 4,725 1,255 $ 5,980 $10,492

Required:

1. Calculate how much Greg's Graphics' sales, net income, and assets have grown dur- ing these three years.

2. Explain how Greg's Graphics has financed the increase in assets.

3. Discuss whether Greg's Graphics' liquidity is adequate.

4. Explain why interest expense is growing.

5. If Greg's Graphics' sales grow by 25 percent in 2010, what would you expect net income to be?

6. If Greg's Graphics' assets must grow by 25 percent to support the 25 percent sales increase and if 50 percent of net income is paid in dividends, how much capital must Greg's Graphics raise?

Reference no: EM13940916

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