Q4. 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 200,000 Accounts Payable 700,000 Accounts Receivable 300,000 Notes Payable 600,000 Inventory 800,000 Total Current Assets 1,300,000 Total Current Liabilities 1,300,000 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 Retained Earnings 100,000 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. FINA2004 Portfolio Management – Case Study Analysis. Academic Year 2021/2022, Semester 2 Page 5 of 5 a. Return on equity b. Total assets turnover c. Return on assets
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.
Q4. 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 200,000 Accounts Payable 700,000
Accounts Receivable 300,000 Notes Payable 600,000
Inventory 800,000
Total Current Assets 1,300,000 Total Current Liabilities 1,300,000
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.
FINA2004
Page 5 of 5
a. Return on equity
b. Total assets turnover
c. Return on assets
d. Current ratio
e. Receivables turnover
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