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analyze the common size income statements for Chang Dental Clinic for the years ending December 31, 2003, 2004 and 2005. Analyze any trends you observe in the data and evaluate Chang Dentals values relative to the associated Key Industry ratios in Exhibit 4 (if available and if applicable). Exhibit 4:
INCOME STATEMENT For the year ended December 31 2005 2004 2003 FEE REVENUE $ 812,987 $ 600,308 $ 287,281 OPERATING EXPENSES: Associate fees Salaries and benefits Dental supplies Equipment leasing Rent and utilities Laboratory fees General and office Promotion and entertainment Automobile expenses Telephone Professional fees Interest and bank charges Professional development Insurance Licences, fees and dues Bad debts (recovered) Amortization TOTAL EXPENSES 166,727 127,703 62,715 52,582 42,441 21,626 17,420 10,775 5,104 11,187 5,910 5,630 2,913 2,778 1,843 (3,647) 14,872 548,579 106,486 93,868 40,508 52,582 38,500 10,636 14,193 8,172 3,677 1,251 3,294 7,015 406 1,612 2,685 17,939 10,484 413,308 40,098 39,008 26,291 19,456 29,428 186 9,051 794 1,337 4,697 5,755 13,579 2,021 849 1,282 339 8,687 202,858 NET INCOME $ 264,408 $ 187,000 $ 84,423 Exhibit 4 KEY INDUSTRY RATIOS RATIO 2005 2004 2003 Percentage of Total Assets: Cash Accounts receivable Inventory Fixed assets Intangibles 23.0% 5.7% 0.4% 42.8% 15.2% 22.3% 6.8% 0.4% 45.3% 12.8% 20.4% 6.8% 0.6% 47.4% 13.4% Percentage of Total Liabilities and Equity: Accounts payable Long-term debt Equity 3.0% 44.2% 7.0% 2.6% 41.0% 10.1% 2.7% 42.7% 3.8% Percentage of Total Sales: Operating expenses Net income before taxes 88.5% 9.7% 88.2% 9.6% 89.1% 8.6% Current ratio Acid test ratio 0.8 0.7 0.7 0.6 0.7 0.6 Age of accounts receivable' Age of inventory Age of accounts payable' N/A N/A N/A N/A N/A N/A N/A N/A N/A Interest coverage 4.5x 3.8% 3.5x Debt to equity 71.6 29.4 59.0 Return on equity Return on assets 95.9% 18.1% 88.7% 15.5% 75.2% 13.5% Fixed asset turnover Total asset turnover 15.3% 4.7x 13.9x 4.8x 12.8x 5.9x INCOME STATEMENT For the year ended December 31 2005 2004 2003 FEE REVENUE $ 812,987 $ 600,308 $ 287,281 OPERATING EXPENSES: Associate fees Salaries and benefits Dental supplies Equipment leasing Rent and utilities Laboratory fees General and office Promotion and entertainment Automobile expenses Telephone Professional fees Interest and bank charges Professional development Insurance Licences, fees and dues Bad debts (recovered) Amortization TOTAL EXPENSES 166,727 127,703 62,715 52,582 42,441 21,626 17,420 10,775 5,104 11,187 5,910 5,630 2,913 2,778 1,843 (3,647) 14,872 548,579 106,486 93,868 40,508 52,582 38,500 10,636 14,193 8,172 3,677 1,251 3,294 7,015 406 1,612 2,685 17,939 10,484 413,308 40,098 39,008 26,291 19,456 29,428 186 9,051 794 1,337 4,697 5,755 13,579 2,021 849 1,282 339 8,687 202,858 NET INCOME $ 264,408 $ 187,000 $ 84,423 Exhibit 4 KEY INDUSTRY RATIOS RATIO 2005 2004 2003 Percentage of Total Assets: Cash Accounts receivable Inventory Fixed assets Intangibles 23.0% 5.7% 0.4% 42.8% 15.2% 22.3% 6.8% 0.4% 45.3% 12.8% 20.4% 6.8% 0.6% 47.4% 13.4% Percentage of Total Liabilities and Equity: Accounts payable Long-term debt Equity 3.0% 44.2% 7.0% 2.6% 41.0% 10.1% 2.7% 42.7% 3.8% Percentage of Total Sales: Operating expenses Net income before taxes 88.5% 9.7% 88.2% 9.6% 89.1% 8.6% Current ratio Acid test ratio 0.8 0.7 0.7 0.6 0.7 0.6 Age of accounts receivable' Age of inventory Age of accounts payable' N/A N/A N/A N/A N/A N/A N/A N/A N/A Interest coverage 4.5x 3.8% 3.5x Debt to equity 71.6 29.4 59.0 Return on equity Return on assets 95.9% 18.1% 88.7% 15.5% 75.2% 13.5% Fixed asset turnover Total asset turnover 15.3% 4.7x 13.9x 4.8x 12.8x 5.9x
