Question

Gardems was recently hired as a financial analyst by Taylor, Inc., which is a Pennsylvania based company. His first task is to conduct a financial statement analysis of firm covering the past 2 years.

Assess the firm's liquidity position.

Balance Sheets Cash Accounts receivable Inventory Total current assets 2012 $52,000 402,000 836,000 $1,290,000 2011 57,600 351,200 715,200 $1,124,000 Gross fixed assets Less: Accumulated depreciation Net fixed assets Total assets $527,000 166,200 $360,800 $1,650,800 $491,000 146,200 344,800 $1,468,800 Accounts payable Notes payable Accruals Total current liabilities Long-term debt Common stock Retained earnings Total equity Total Claims $175,200 225,000 140,000 $540,200 424,612 460,000 225,988 $685,988 $1,650,800 $145,600 200,000 136,000 $481,600 $323,432 460,000 203,768 $663,768 $1,468,800 INCOME STATEMENTS Sales Cost of goods sold Other expenses Depreciation EBIT Interest expense EBT Taxes (40%) Net income $3,850,000 3,250,000 430,300 20,000 $ 149,700 76,000 $73,700 29,480 $44,220 $3,432,000 2,864,000 340,000 18,900 $209,100 62,500 146,600 58,640 $87,960 OTHER DATA December 31 stock price Number of shares outstanding Dividend per share Annual lease payment Earnings per share $6.00 100,000 $0.22 $40,000 $0.442 $8.50 100,000 $0.22 $40,000 $0.880

Answer 1

Current ratio = current Asset / current liability

2012 = 1290000/540200 = 2.39:1

2011 = 1124000 /481600 = 2.33:1

Industry average :2.7:1

the position in current ratio has been improving as compared to previous year but still higher current ratio is required to meet industry average.

Quick ratio = Liquid assets / Current liability

(Liquid asset = current assets-Inventory)

2012 = (1290000-836000)/ 540200

= 454,000/540200

= 0.84:1

2011 = (1124000-715200)/ 481600

= 0.85:1

Firm quick ratio shows that firm's liquidity has been slightly deteriorated as compared to last year and it is also very less as compared to industry average of 1.0.

The firm need to invest in current asstes or reduce the the proportion of current liability.

Hope my efforts will be fruitful to you...?