Question

El Cap Climbing Company (ECCC) is a small startup that manufactures and sells high-quality climbing gear in Fresno, California. The founder of the company, Leah, has been incredibly successful, but hasn’t kept the company’s financial records as well as she might have. The initial investment for El Cap was provided by her friends and family, and was small. However, current operations can’t meet the demand for the product, and Leah has plans to increase both production and the number of storefronts. These plans require a large investment from both equity and debt financing. The new investors and creditors require detailed financial statements. Leah has hired you, a financial analyst, to prepare these statements and give insight into the financial position of the firm. Leah has provided information from her bank statements, bills, and receipts in an Excel spreadsheet, which is found in your downloaded project files. She explained to you that taxes are paid at a rate of 30 percent, and dividends are paid at a rate of 40 percent. (Note: You can create the statements in the same Excel spreadsheet that has the financial information. Be sure to let the instructor know if you choose to do this instead of creating them in a Word document.) Prepare the following: An income statement for 2015 and 2016 A balance sheet for 2015 and 2016 Operating cash flows for the two years Cash flows from assets in 2016 Cash flows to creditors for 2016 Cash flows to stockholders for 2016 B. Answer the following: 1. How would you describe the financial position of the firm in 2016? Write a brief overview. 2. What do you think about Leah’s plans to expand? SPREADSHEET: 2015 2016 Cost of Goods Sold 235,942 297,915 Cash 36,542 51,940 Depreciation 61,056 69,011 Interest Expense 13,877 15,905 Selling and Admin Exp 40,952 58,569 Accounts Payable 32,194 33,999 Net Fixed Assets 269,369 328,185 Sales 482,155 587,715 Accounts Receivable 24,120 24,089 Notes Payable 24,866 26,972 Long-Term Debt 142,148 161,000 Inventory 32,766 58,798 New Equity 0 16,000

Please show your formulas

Answer 1

Income Statement
Particulars	2015	2016	Particulars	2015	2016
Cost of Good Sold	235942	297915	Sales	482155	587715
Gross Profit	278979	348598	Inventory	32766	58798
	514921	646513		514921	646513
Depreciation	61056	69011	Gross Profit	235942	297915
Interest Expenses	13877	15905
Selling and Admin Exp	40952	58569
Net Profit	120057	154430
	235942	297915		235942	297915
Income tax	36017	46329	Net Profit before tax	120057	154430
Profit After Tax @ 30%	84040	108101
	120057	154430		120057	154430
Dividend Paid @ 40 %	33616	43240	Profit After Tax	84040	108101
Profit after dividend	50424	64861
Balance Sheet
Liabilites	2015	2016	Assets	2015	2016
Equity Balancing figure	145359	194179	Cash	36542	51940
New Equity	0	16000	Accounts Receivable	24120	24089
Long Term debt	142148	161000	Net Fixed Assets	269369	328185
Notes Payble	24866	26972	Inventory	32766	58798
Profit	50424	64861
	362797	463012		362797	463012
Debt to equity ratio is a long term solvency ratio that indicates the soundness of long-term financial policies of a company. It shows the relation between the portion of assets financed by creditors and the portion of assets financed by stockholders. As the debt to equity ratio expresses the relationship between external equity (liabilities) and internal equity (stockholder’s equity), it is also known as “external-internal equity ratio”.
						Total Debt	167014	187972
						Equity	145359	194179
						Debt Equity Ratio	1.14898	0.96803
The debt to equity ratio of company is 1.1489 or 0.9680 : 1. It means the liabilities are 114% and 96.8% of stockholders equity
A ratio of 1 (or 1 : 1) means that creditors and stockholders equally contribute to the assets of the business.
A less than 1 ratio indicates that the portion of assets provided by stockholders is greater than the portion of assets provided by creditors and a greater than 1 ratio indicates that the portion of assets provided by creditors is greater than the portion of assets provided by stockholders.
Creditors usually like a low debt to equity ratio because a low ratio (less than 1) is the indication of greater protection to their money. But stockholders like to get benefit from the funds provided by the creditors therefore they would like a high debt to equity ratio.