Dairy King, LTD., reported the following results for 1999 (dollars in millions):

1999 1998 Revenues:

Net sales $268.8 $241.6 Service fees 54.2 51.6 Franchise sales (fees) 8.6 7.6 Property management 8.1 9.0 Other 1.1 1.3 340.8 311.1 Costs and expenses:

Cost of sales 242.4 217.2 Property management expenses 7.6 8.4 Selling, general, and administrative 40.5 37.5 Interest expense (income) (1.6) (1.4)

288.9 261.7 Income before income taxes 51.9 49.4 Income taxes 20.5 19.5 Net income $ 31.4 $ 29.9 Earnings per common share $ 1.30 $ 1.19 Dairy King’s Consolidated Balance Sheet is shown below:

1999 1998 Assets Current assets:

Cash and cash equivalents $ 31.8 $ 21.2 Marketable securities 7.0 10.0 Notes receivable, net 7.4 3.4 Accounts receivable, net 25.1 23.2 Inventories 5.4 4.6 Prepaid expenses 2.4 1.1 Miscellaneous 1.2 1.5 Total current assets 80.3 65.0 Other assets:

Notes receivable, net 14.4 21.4 Miscellaneous 1.3 1.6 Total other assets 15.7 23.0 Other revenue-producing assets:

Franchise rights, net 87.8 83.8 Rental properties, net 2.9 3.2 Total other assets 90.7 87.0 Property, plant, and equipment, Net 9.8 9.3 Total assets $196.5 $184.3 Required

a. Identify any unusual terms in Dairy King’s financial statements.

b. Prepare a horizontal analysis of Dairy King’s income statement.

c. Prepare a vertical analysis of Dairy King’s income statement.

d. Calculate the appropriate liquidity ratios from Dairy King’s balance sheet.

e. Conduct a profitability analysis.

f. Prepare a capital structure analysis.
g. Write a short memo summarizing your conclusions. Indicate why Dairy King might be facing financial threats or opportunities. Also indicate any additional data necessary to refine your analyses or conclusions.P=968