A few of your friends have heard that you have been studying financial statements in your 5203: Accounting course and now consider you an expert on financial statement analysis. Your friend Jim has just been promoted to Chief Executive Officer of Cape Breton Beverages Incorporated (CBBI) which is a private corporation. Since Jim is new to this management role, he is concerned about the financial performance of CBBI over the past few years and has provided you with the selected information. Jim has not provided you with a full set of financial statements, only the income statement and balance sheet as he believes that is all you will need for your analysis.

Cape Breton Beverages Incorporated Comparative Income Statement (in thousands) For the year ended December 31, 2020

2020 2019 Net Sales $8,550 $13,500 Cost of Goods Sold 2,980 4,140 Gross Profit 5,570 9,360 Operating Expenses 1,845 2,101 Operating Income 3,725 7,259 Interest Expense 312 50 Income Before Income Tax 3,413 7,209 Income Tax Expense 362 550 Net Income $ 3,051 $ 6,659

Cape Breton Beverages Incorporated Comparative Balance Sheet (in thousands)

December 31, 2020

2020 2019

Assets Current Assets: Cash $ 1,506 $ 5,300 Marketable Securities 820 1,820 Accounts Receivable, net 1,650 1,950 Inventory 1,000 1,100 Supplies 850 982 Prepaid Expenses 980 1,201 Total Current Assets 6,806 12,353 Property, Plant, and Equipment, net 27,045 21,457 Total Assets $ 33,851 $ 33,810 Liabilities & Shareholders Equity Liabilities: Accounts Payable $ 2,850 $ 2,854 Note Payable 4,100 3,290 Total Current Liabilities 6,950 6,144 Long Term Liabilities 7,500 8,500 Total Liabilities 14,450 14,644 Shareholders Equity Retained Earnings 9,401 9,166 Capital Stock 10,000 10,000 Total Shareholders Equity 19,401 19,166 Total Liabilities & Shareholders Equity $ 33,851 $ 33,810

Additional Information: Note: Credit terms for Accounts Receivable are 30 days for CBBI. Inventories at December 31, 2018 were $828. Accounts Receivable, net at December 31, 2018 were $250. Total Assets at December 31, 2018 were $24,621. Accounts Payable at December 31, 2018 were $1,844. Total Shareholders Equity at December 31, 2018 were $16,400. Common shares outstanding remained at 10,000 since 2017.

Question 1 Jim has a meeting with a bank tomorrow to inquire about obtaining a short-term loan to expand his operations in 2021. Based on your knowledge, Jim asks you to assess the liquidity of his company, and more specifically if you believe the bank will grant his company the loan. (30 points)

Question 2 Jim is so impressed with your liquidity analysis that he also asks you to assess the profitability of his company, and more specifically if you believe CBBI is profitable or unprofitable. (30 points)