Reference no: EM131162196

Ratio Computations and Additional Analysis

Bradburn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Bradburn and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2014, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,000 notes, which are due on June 30, 2015, and September 30, 2015. Another note of $6,000 is due on March 31, 2016, but he expects no difficulty in paying this note on its due date. Brown explained that Bradburn's cash flow problems are due primarily to the company's desire to finance a $300,000 plant expansion over the next 2 fiscal years through internally generated funds.

The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years.

BRADBURN CORPORATION BALANCE SHEET MARCH 31
Assets	2015	2014
Cash	$ 18,200	$ 12,500
Notes receivable	148,000	132,000
Accounts receivable (net)	131,800	125,500
Inventories (at cost)	105,000	50.000
Plant & equipment (net of depreciation)	1,449,000	1,420.500
Total assets	$1,852,000	$1,740,500
Liabilities and Stockholders' Equity
Accounts payable	$ 79,000	$ 91.000
Notes payable	76,000	61.500
Accrued liabilities	9,000	6.000
Common stock (130,000 shares, $10 par)	1,300,000	1,300.000
Retained earningsa	388,000	282.000
Total liabilities and stockholders' equity	$1,852,000	$1,740,500

^aCash dividends were paid at the rate of $1 per share in fiscal year 2014 and $2 per share in fiscal year 2015.

BRADBURN CORPORATION INCOME STATEMENT FOR THE FISCAL YEARS ENDED MARCH 31
	2015	2014
Sales revenue	$3,000,000	$2,700,000
Cost of goods solda	1.530,000	1,425,000
Gross margin	1,470,000	1,275,000
Operating expenses	860,000	780,000
Income before income taxes	610,000	495,000
Income taxes (40%)	244,000	198,000
Net income	$ 366,000	$ 297,000

^aDepreciation charges on the plant and equipment of S100.000 and $102.500 for fiscal years ended March 31, 2014 and 2015. respectively. are included in cost of goods sold.

Instructions

(c) Assume that the percentage changes experienced in fiscal year 2015 as compared with fiscal year 2014 for sales and cost of goods sold will be repeated in each of the next 2 years. Is Bradburn's desire to finance the plant expansion from internally generated funds realistic? Discuss.

(d) Should Topeka National Bank grant the extension on Bradburn's notes considering Daniel Brown's statement about financing the plant expansion through internally generated funds? Discuss.