Analysis of Financial StatementsThere was a bit of concern about one of Big Rock’s newer entities – Big Rock PavingCompany. Management wants you to review the two financial statements below and giveyour analysis of the company’s performance.Big Rock Paving CompanyAssetsLiabilitiesCurrent Assets: Current Liabilities:Cash 500,000 Accounts Payable 700,000Accounts Receivable 300,000 Notes Payable 500,000Inventory 800,000Total Current Assets 1,300,000 Total Current Liabilities 1,200,000Fixed Assets: Owners’ Equity:Property, Plant & Equipment 2,200,000 Common Stock ($1 Par) 600,000Less: Accumulated Depreciation 600,000 Capital Surplus 100,000Net Fixed Assets 1,600,000 Retained Earnings 100,000Total Assets 2,900,000 Total Owners’ Equity 800,000Total Liabilities and Owners’Equity2,900,000Big Rock Paving CompanyIncome Statement for Year Ending December 31, 2021Sales 3,400,000Less: Cost of Goods Sold 2,700,000Less: Administrative Expenses 700,000Less Depreciation 682,000Earnings Before Interest and Taxes (682,000)Less: Interest Expense 120,000Taxable Income (802,000)Less: Taxes (280,000)Net Income (522,000)Dividends 0Addition to Retained Earnings (522,000)Required: Evaluate the performance of Big Rock Paving Company using the belowratios. Define each ratio, perform the calculation, and provide an explanation of theresult.a. Return on equityb. Total assets turnoverc. Return on assetsd. Current ratioe. Receivables turnover
Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
Analysis of Financial Statements
There was a bit of concern about one of Big Rock’s newer entities – Big Rock Paving
Company. Management wants you to review the two financial statements below and give
your analysis of the company’s performance.
Big Rock Paving Company
Assets
Liabilities
Current Assets: Current Liabilities:
Cash 500,000 Accounts Payable 700,000
Accounts Receivable 300,000 Notes Payable 500,000
Inventory 800,000
Total Current Assets 1,300,000 Total Current Liabilities 1,200,000
Fixed Assets: Owners’ Equity:
Property, Plant & Equipment 2,200,000 Common Stock ($1 Par) 600,000
Less: Accumulated Depreciation 600,000 Capital Surplus 100,000
Net Fixed Assets 1,600,000
Total Assets 2,900,000 Total Owners’ Equity 800,000
Total Liabilities and Owners’
Equity
2,900,000
Big Rock Paving Company
Income Statement for Year Ending December 31, 2021
Sales 3,400,000
Less: Cost of Goods Sold 2,700,000
Less: Administrative Expenses 700,000
Less Depreciation 682,000
Earnings Before Interest and Taxes (682,000)
Less: Interest Expense 120,000
Taxable Income (802,000)
Less: Taxes (280,000)
Net Income (522,000)
Dividends 0
Addition to Retained Earnings (522,000)
Required: Evaluate the performance of Big Rock Paving Company using the below
ratios. Define each ratio, perform the calculation, and provide an explanation of the
result.
a. Return on equity
b. Total assets turnover
c. Return on assets
d. Current ratio
e. Receivables turnover
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