ANALYSIS financial Carlos Santana is the accountant and Manager of intrudes distributor companies. He hires you as a consultant and financial analyst in the loan application. The company is requesting a loan of five years in a known Community Bank. The purpose of the loan is to cancel the promissory note-"notes payable" 2012 and to finance current assets, especially inventory of merchandise. He then presented the following financial statements. INCOME STATEMENTS: 2012 2011 SALES $16,665,000 $ 15,053,750 COST OF GOODS SOLD 9,270,000 7,987,000 GROSS PROFIT $ 7,395,000 $ 7,066,750 OPERATING EXPENSES: FIXED CASH OPERATING EXPENSES $ 1,925,000 $ 1,725,000 VARIABLE OPERATING EXPENSES 1,840,000 1,788,000 DEPRECIATION 480,000 380,000 TOTAL OPERATING EXPENSES $ 4,245,000 $ 3,893,000 EARNINGS BEFORE INTEREST & TAXES $ 3,150,000 $ 3,173,750 INTEREST 1,332,500 1,315,000 EARNINGS BEFORE TAXES $ 1,817,500 $ 1,858,750 TAXES 727,000 743,500 NET INCOME $ 1,090,500 $ 1,115,250 LESS PREFERRED STOCKS DIVIDENDS 247,500 278,125 EARNINGS AVAILABLE FOR COMMON STOCKHOLDER $ 843,000 $ 837,125 ========== ========== BALANCE SHEETS: ASSETS 2012 2011 CASH $ 512,500 $ 410,250 ACCOUNTS RECEIVABLE 2,313,890 2,209,750 MARKETABLE SECURITIES 762,500 800,000 INVENTORIES 1,989,062 1,958,612 TOTAL CURRENT ASSETS $ 5,577,952 $ 5,378,612 LAND $ 6,934,547 $ 6,729,267 BUILDING & EQUIPMENT 3,500,000 3,500,000 LESS: ALLOWANCE FOR DEPRECIATION 1,250,000 1,150,000 TOTAL FIXED ASSETS (NET) $ 9,184,547 $ 9,079,267 TOTAL ASSETS $14,762,499 $14,457,879 ======== ========= LIABILITIES ACCOUNTS PAYABLE $ 2,875,000 $ 2,621,250 NOTES PAYABLE 1,427,500 1,275,000 MORTGAGE - CURRENT PORTION 187,500 252,255 TOTAL CURRENT LIABILITIES $ 4,490,000 $ 4,148,505 MORTGAGE DEBT- LONG TERM $ 3,913,125 $ 4,793,000 TOTAL LIABILITIES $ 8,403,125 $ 8,941,505 STOCKHOLDERS EQUITY COMMON STOCKS $ 2,100,000 $2,100,000 PAID IN CAPITAL 966,374 966,374 RETAINED EARNINGS 3,293,000 2,450,000 TOTAL STOCKHOLDERS EQUITY $ 6,359,374 $ 5,516,374 TOTAL LIAB. & STOCKHOLDERS EQUITY $ 14,762,499 $ 14,457,879 =========== =========== INDUSTRIES RATIOS: INDUSTRIES AVERAGE CURRENT RATIO 1.50 ACID TEST RATIO 1.20 AVERAGE COLLECTION PERIOD 30 DAYS INVENTORY TURN/OVER 10.20 TIMES DEBTS TO TOTAL ASSETS 24.50% LONG TERM DEBTS TO TOTAL CAPITALIZATION 33% TIMES INTEREST EARNED 2.50 TIME GROSS PROFIT MARGIN 26% OPERATING PROFIT MARGIN 17% NET PROFIT MARGIN 7.50% TOTAL ASSETS TURN/OVER 2.14 TIMES FIXED ASSETS TURN/OVER 1.40 TIMES OPERATING EARNINGS RETURN ON INVESTMENT 11.4% RETURN ON TOTAL ASSETS 4.00% RETURN ON COMMON EQUITY 9.50% Required: 1. RATIO ANALYSIS: EXCELLENCE, GOOD, AVERAGE, POOR, and DEFICIENT (personal appraisal) 2. COMMON SIZE ANALYSIS A. INCOME STATEMENTS B. BALANCE SHEETS 3. FUND STATEMENT ANALYSIS 4. ANALYZE THE LOAN REQUEST. WOULD YOU GRANT THE LOAN? EXPLAIN