The Balance Sheet and Income Statement Data for Galaxy Computer Co. is given below BALANCE SHEET Assets 2001 2000 Cash 7,282 9,000 Short term investment 0 48,600 Acc. Receivable 632,160 351,200 Inventories 1,287,360 715,200 Total current assets 1,926,802 1,124,000 Fixed Assets Plant & Equipment 1,202,950 491,000 Less: Acc dep 263,160 146,200 939,790 344,800 Total assets 2,866,592 1,468,800 Liabilities & Equities Current liability A/c Payable 524,160 145,600 Notes payable 720,000 200,000 Accruals 489,600 136,000 total Current liability 1,733,760 481,600 Long-term debt 1,000,000 323,432 Common Stock 460,000 460,000 Retained Earning -327,168 203,768 1,132,832 987,200 Total equities 2,866,592 1,468,800 Income Statement Sales 5,834,400 3,432,000 Cost of Goods Sold 5,728,000 2,864,000 Other expense 680,000 340,000 dep 116,960 18,900 EBIT/ LOSS -690,560 209,100 Interest expense 176,000 62,500 EBT/ LOSS -866,560 146,600 tax -346624 58640 net income/loss -519,936 87,960 Required: part 1. Compute following ratios in each area (numbered 1 to 6 below) for both years. (Note: Do not take average of two years to calculate any formula, work on individual year figure for all calculation. For example, do not take average inventory or average receivable) Liquidity Profitability Leverage Efficiency ratio/Asset Activity Coverage ratio Market ratio part 2. Based on your calculations in part a, interpret and give your comments about the company’s liquidity, profitability, and solvency.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
The
|
BALANCE SHEET |
||
|
Assets |
2001 |
2000 |
|
Cash |
7,282 |
9,000 |
|
Short term investment |
0 |
48,600 |
|
Acc. Receivable |
632,160 |
351,200 |
|
Inventories |
1,287,360 |
715,200 |
|
Total current assets |
1,926,802 |
1,124,000 |
|
|
|
|
|
Fixed Assets |
|
|
|
Plant & Equipment |
1,202,950 |
491,000 |
|
Less: Acc dep |
263,160 |
146,200 |
|
|
939,790 |
344,800 |
|
Total assets |
2,866,592 |
1,468,800 |
|
|
|
|
|
Liabilities & Equities |
|
|
|
Current liability |
|
|
|
A/c Payable |
524,160 |
145,600 |
|
Notes payable |
720,000 |
200,000 |
|
Accruals |
489,600 |
136,000 |
|
total Current liability |
1,733,760 |
481,600 |
|
|
|
|
|
Long-term debt |
1,000,000 |
323,432 |
|
Common Stock |
460,000 |
460,000 |
|
|
-327,168 |
203,768 |
|
|
1,132,832 |
987,200 |
|
Total equities |
2,866,592 |
1,468,800 |
|
|
|
|
|
Income Statement |
||
|
Sales |
5,834,400 |
3,432,000 |
|
Cost of Goods Sold |
5,728,000 |
2,864,000 |
|
Other expense |
680,000 |
340,000 |
|
dep |
116,960 |
18,900 |
|
EBIT/ LOSS |
-690,560 |
209,100 |
|
Interest expense |
176,000 |
62,500 |
|
EBT/ LOSS |
-866,560 |
146,600 |
|
tax |
-346624 |
58640 |
|
net income/loss |
-519,936 |
87,960 |
Required:
part 1. Compute following ratios in each area (numbered 1 to 6 below) for both years. (Note: Do not take average of two years to calculate any formula, work on individual year figure for all calculation. For example, do not take average inventory or average receivable)
- Liquidity
- Profitability
- Leverage
- Efficiency ratio/Asset Activity
- Coverage ratio
- Market ratio
part 2. Based on your calculations in part a, interpret and give your comments about the company’s liquidity, profitability, and solvency.
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