1- When calculating a ratio with numbers from the balance sheet and income statement, why must you use the balance sheets from the beginning and end of the period covered by the income statement?

- How does retention affect the financial ratios? What ratios does it affect?

- Determine the current ratio for the commercial construction company in Figures 6-1 and 6-2. What insight does this give you into the companys financial operations?

- Determine the fixed assets to net worth ratio for the commercial construction company in Figures 6-1 and 6-2. What insight does this give you into the companys financial operations?

Figure 6-1 Balance Sheet for Big W Construction

Figure 6-2 Income Statement for Big W Construction

Quick Ratio = Cash + Accounts Receivable / Current Liabilities

Current Year Last Year 200,492 402,854 25,365 32,586 12,548 5,621 11,254 690,720 144,254 308,253 21,885 15,234 0 4,825 7.225 501,676 ASSETS CURRENT ASSETS Cash Accounts Receivable-Trade Accounts Receivable-Retention Costs and Profits in Excess of Billings Notes Receivable Prepaid Expenses Other Current Assets Total Current Assets FIXED AND OTHER ASSETS Land Buildings Construction Equipment Trucks and Autos Office Equipment Total Fixed Assets Less Acc. Depreciation Net Fixed Assets Other Assets Total Assets 72,000 103,862 95,284 51,245 56,896 379,287 224,512 154,775 178,544 1,024,039 72,000 103,862 95,284 31,556 42,546 345,248 182,990 162,258 171,256 835,190 LIABILITIES Current Liabilities Accounts Payable-Trade Accounts Payable-Retention Billings in Excess of Costs and Profits Notes Payable Accrued Payables Accrued Taxes Accrued Vacation Other Current Liabilities Total Current Liabilities Long-Term Liabilities Total Liabilities 325,458 22,546 5,218 15,514 15,648 10,521 3,564 25,438 423,907 153,215 577,122 228,585 18,254 11,562 45,250 16,658 8,254 3,002 35,648 367,213 99,073 466,286 10,000 358,904 OWNERS' EQUITY Capital Stock Retained Earnings Current Period Net Income Total Equity Total Liabilities and Equity 10,000 436,917 0 446,917 1,024,039 368,904 835,190 BIG W CONSTRUCTION INCOME STATEMENT 3,698,945 100.0% REVENUES CONSTRUCTION COSTS Materials Labor Subcontract Equipment Other Total Construction Costs 712,564 19.3% 896,514 24.2% 1,452,352 39.3% 119,575 3.2% 5,452 0.1% 3,186,457 86.1% EQUIPMENT COSTS Rent and Lease Payments Depreciation Repairs and Maintenance Fuel and Lubrication Taxes, Licenses, and Insurance Equipment Costs Charged to Jobs Equipment Costs Charged to Employees Total Equipment Costs 35,425 32,397 21,254 29,245 1,254 119,575 0 0 1.0% 0.9% 0.6% 0.8% 0.0% 3.2% 0.0% 0.0% GROSS PROFIT 512,488 13.9% OVERHEAD 422,562 11.4% NET PROFIT FROM OPERATIONS 89,926 2.4% OTHER INCOME AND EXPENSE 21,521 0.6% PROFIT BEFORE TAXES 111,447 3.0% INCOME TAX 33,434 0.9% PROFIT AFTER TAXES 78,013 2.1% Average A1 A2 + + = As A9 + + 12 12 24 12 12