Question
A Chief Executive Officer (CEO) wants the following analysis completed in preparing for a long-t bank loan renewal and to support growth in the
A Chief Executive Officer (CEO) wants the following analysis completed in preparing for a long-t bank loan renewal and to support growth in the future. The CEO asks the Chief Financial Officer (CFO) to prepare the following analysis. The CFO believes the bank will want as covenants Current Ratio Long-term Debt to Equity Interest Coverage Return on Sales Return on Assets Return on Equity 1.0 minimum 100% maximum 3 times 5.0% minimum 2.5% minimum 6.0% minimum 2021 Actual Results 2020 2019 Sales COGS 130,000 110,000 100,000 (84,000) (70,000) (63.000) Gross Margin 46,000 40,000 37,000 Other Fixed Costs (16,000) (16.000) (16,000) Depreciation (5,000) (5,000) (4,000) Earnings before Taxes and Interest (EBIT) 25,000 19,000 17,000 Interest (5,000) (5.000) (5,000) Earnings before Taxes 20,000 14,000 12,000 Taxes (6,000) (5.000) (4,000) Net Income 14,000 9,000 8.000 Dividends (5,600) (3.600) (3.200) Change to Retained Earsnings 8,400 5,400 4,800 Cash 28,600 16,000 6.500 Accounts Receivable 10,000 9,900 8,800 Inventory 3,000 3,300 3.000 Fixed Assets 210,000 200,000 200,000 Total 251,600 229,200 218,300 Accounts Payable 23.000 15,000 13,500 Long-term Debe 105.000 104,000 100,000 Common Stock 105,000 100,000 100,000 Retained Earnings 18.600 10,200 4.800 Total 251,600 229,200 218,300 Question-Prepare a ratio analysis report for the CEO covering liquidity, solvency, and profitability for 2021 and 2020. The analysis should assess the trends and covenant status of the company, (15 marks)
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