Question

Concord Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Concord and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2018, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,150 notes, which are due on June 30, 2018, and September 30, 2018. Another note of $5,990 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date. Brown explained that Concord's cash flow problems are due primarily to the company's desire to finance a $302,830 plant expansion over the next 2 fiscal years through internally generated funds. The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years. CONCORD CORPORATION BALANCE SHEET MARCH 31 Assets 2018 2017 Cash $18,160 $12,510 Notes receivable 147.630 131.480 Accounts receivable (net) 131,500 125,740 Inventories (at cost) 104,010 49,720 Plant & equipment (net of depreciation) 1,445,080 1,423,170 Total assets $1,846,380 $1,742,620 Liabilities and Owners' Equity Accounts payable $79,000 $90,630 Notes payable 75,300 61,680 Accrued liabilities 18,710 13.720 Common stock (130,000 shares, $10 par) 1,287,300 1,296,480 Retained earnings 386.070 280.110 Total liabilities and stockholders' equity $1,846,380 $1,742,620 *Cash dividends were paid at the rate of $1 per share in fiscal year 2017 and $2 per share in fiscal year 2018.

Answer 1

(1) Current ratio for fiscal years 2017 and 2018. Current assets $319,450 / $166,030 1.92 to 1 2017 Current ratio = Current liabilities Current assets $401,300 / $173,010 2.32 to 1 2018 Current ratio = Current liabilities (2) Acid-test (quick) ratio for fiscal years 2017 and 2018 Current assets - Inventories $269,730 / $166,030 2017 Quick ratio Current liabilities 1.62 Current assets - Inventories $297,290 / $173,010 2018 Quick ratio Current liabilities 1.72

(3) Inventory turnover for fiscal year 2018 Cost of goods sold $1,545,260 / $76,865 20.10 times 2018 Inventory Turnover Average inventory (4) Return on assets for fiscal years 2017 and 2018. (Assume total assets were at March 31, 2016.) $1,697,870 Net income $294,558 / $1,720,245 17.12% 2017 Return on assets = Average total assets Net income $360,426 / $1,794,500 20.09% 2018 Return on assets = Average total assets

(5) Percentage change in sales cost of goods sold, gross margin and net income after taxes from fiscal year 2017 to 2018 2017 2018 Change Percent Change Sales Revenue $2,703,670 $3,010,300 $306,630 11.34% Cost of goods sold $1,433,530 $1,545,260 $111,730 7.79% Gross margin $1,270,140 $1,465,040 $194,900 15.34% Net income after taxes $294,558 $360,426 $65,868 22.36%