Question

Robust Robots, Inc.
Comparative Balance Sheet- Horizontal Analysis
December 31, 2019 and 2018
Assets		2019		2018		Differents	Percentage
Current Assets:
	Cash	$65,000		$80,000		$   (15,000.00)	-18.75%
	Accounts Receivable, net	$150,000		$100,000		$     50,000.00	50.00%
	Merchandise Inventory	$135,000		$70,000		$     65,000.00	92.86%
	Supplies	$9,700		$500		$       9,200.00	1840.00%
	Prepaid Insurance	$30,000		$10,000		$     20,000.00	200.00%
	Total Current Assets	$389,700		$260,500		$   129,200.00	49.60%
Property, Plant, and Equipment:
	Equipment	$500,000		$240,000		$   260,000.00	108.33%
	Less: Accumulated Depreciation - Equipment	($80,000)		($90,000)		$     10,000.00	-11.11%
	Total Property, Plant, and Equipment	$420,000		$150,000		$   270,000.00	180.00%
Total Assets		$809,700		$410,500		$   399,200.00	97.25%
Liabilities and Stockholders’ Equity		2019		2018
Current Liabilities:
	Accounts Payable	$150,000		$40,000		$   110,000.00	275.00%
	Unearned Revenue	$40,000		$50,000		$   (10,000.00)	-20.00%
	Salaries Payable	$40,000		$30,000		$     10,000.00	33.33%
	Federal Income Taxes Payable	$10,000		$10,000		$                   -	0.00%
	Total Current Liabilities	$240,000		$130,000		$   110,000.00	84.62%
Long Term Liabilities
	Note Payable	$130,000		-		$   130,000.00	0.00%
Total Long-Term Liabilities		$130,000		-		$   130,000.00	0.00%
Total Liabilities		$370,000		$130,000		$   240,000.00	184.60%
Stockholders’ Equity:
	Common Stock, $10 Par	$170,000		$100,000		$     70,000.00	70.00%
	Paid-In Capital in Excess of Par	$43,700		$                          -		$     43,700.00
	Retained Earnings	$226,000		$180,500		$     45,500.00	25.20%
	Total Stockholders’ Equity	$439,700		$280,500		$   159,200.00	56.80%
Total Liabilities and Stockholders’ Equity		$809,700		$410,500		$   399,200.00	97.20%

Robust Robots, Inc.
Comparative Statement of Income -Vertical analysis
For the Years Ended December 31, 2019 and 2018
							2019	%	2018	%
Sales							$700,000	100%	$600,000	100%
Cost of Goods Sold							$524,300	74.90%	$420,000	-70.00%
Gross Margin							$175,700	25.10%	$180,000	30%
Operating Expenses:
	Salaries and Wages Expense						$47,290	6.76%	$100,000	-16.67%
	Rent Expense						$20,256	2.89%	$20,000	-3.33%
	Depreciation Expense						$20,000	2.86%	$10,000	-1.67%
		Total Operating Expenses					$87,546	12.51%	$130,000	21.67%
Income from Operations							$88,154	12.59%	$50,000	8.33%
	Loss on Sale of Equipment						($5,213)	-0.74%	-
	Interest Expense						($3,656)	-0.52%	($5,000)	-0.83%
		Increase (Decrease) in Operating Income					($8,869)	-1.27%	($5,000)	-0.83%
Income before Taxes							$79,285	11.33%	$45,000	7.50%
Federal Income Taxes							$23,786	-3.40%	$13,500	-2.25%
Net Income							$55,500	7.93%	$31,500	5.25%

Working Capital both years	$149,700
Current Ratio both years	1.62
Quick ratio both years	1.06
Account Receivable Turnovers	5.60
Number of Days Sales in Receivables	65
Inventory Turnover	5.12
Number of Days Sales in Inventory	71
	2019	2018
Ratio of Liabilities to Stck Equidy	0.84	0.46
Return on Total Assets 2019	$0.08
Return on StockHolders Equidy	$0.15
	2019	2018
Earnings Per Share	$0.33

Acting as an accounting advisor to the firm, prepare a memo in which you analyze the financial statements you prepared and along with the ratios that you have calculated prepare an analysis of the company’s financial position. Identify two weaknesses in the company. Make two recommendations to improve the company’s financial position. Be specific in each of the recommendations and use the ratios to support your analysis.

Answer 1

Financial Analysis “ Robust Robots Inc” . We have highlighted couple of points :

1. Current Asset Position is alarming . As compared with 2018 , 2019 Total current Asset amount increased by 49.6% mainly because of increased in Account Receivable balance by 50% as well as Inventory balance increased by 93% . This increase also supported by High number of Days Sales in Receiable + Number of days sales in Inventory (65 days in DSO = 71 Days in Inventory days ) , which is really alarming . Because this high ratio blockage Working capital position of the company
2. Current Liability amount increased by 85% mainly due to high increase in Accounts Payable . So company not able collect money so company not releasing money to Vendor also . Looks like company having cash flow issue
3. In the current year company borrowed additional capital of $ 130k which they utilise for capex purpose .Companies all ration has been disturbed in 2019 . Company not able to collect money through Account receivable , Due to high Inventory Turnover , working capital blockage , Not able to release or reduce account payable balance and on top for expansion and capex purpose taking additional loan ( long term ) and increase Interest cost burden
4. From Profit and Loss account analysis , Even though company increased revenue growth in 2019 vs 2018 but Gross Profit Margin has been down by almost 5% . This represents that company not able to manage Operating Expenses , which is absorb adversely revenue growth benefit
5. Return on Asset is low as per Industry Standard . Company recently Invested good amount of money in capex and We expect this Major capitalization benefit will happen in near future and improve ROA

Ratio of Liability to Equity has increased in Current year significantly almost 50% in 2019 as compared with 2018 , which is mainly due to recently company borrowed high money for expansion and capex purpose . We expect company will generate benefit in near future .