Capstone analytical review of Chapters 2-4. Calculate liquidity and profitability measures and explain various financial statement relationships for an excavation contractor Gerrard Construction Co. is an excavation contractor. The following summarized data (in thousands) are taken from the December 31, 2019, financial statements: For the Year Ended December 31, 2019: Net revenues $ 96,600 Cost of services provided 34,200 Depreciation expense 19,500 Operating income $ 42,900 Interest expense 11,400 Income tax expense 9,600 Net income $ 21,900 At December 31, 2019: Assets Cash and short-term investments $ 8,400 Accounts receivable, net 29,400 Property, plant, and equipment, net 232,200 Total assets $270,000 Liabilities and Stockholders' Equity Accounts payable $ 4,500 Income taxes payable 4,800 Notes payable (long term) 142,500 Paid-in capital 30,000 Retained earnings 88,200 Total liabilities and stockholders' equity $270,000 At December 31, 2018, total assets were $246,000 and total stockholders' equity was $97,800. There were no changes in notes payable or paid-in capital during 2019. Required: Page 135 a. The cost of services provided amount includes all operating expenses (selling, general, and administrative expenses) except depreciation expense. What do you suppose the primary reason was for management to separate depreciation from other operating expenses? From a conceptual point of view, should depreciation be considered a cost of providing services? b. Why do you suppose the amounts of depreciation expense and interest expense are so high for Gerrard Construction Co.? To which specific balance sheet accounts should a financial analyst relate these expenses? c. Calculate the company's average income tax rate. (Hint: You must first determine the earnings before taxes.) d. Explain why the amount of income tax expense is different from the amount of income taxes payable. e. Calculate the amount of total current assets. Why do you suppose this amount is so low, relative to total assets? f. Why doesn't the company have a Merchandise Inventory account? g. Calculate the amount of working capital and the current ratio at December 31, 2019. Assess the company's overall liquidity. h. Calculate ROI (including margin and turnover) and ROE for the year ended December 31, 2019. Assess the company's overall profitability. What additional information would you like to have to increase the validity of this assessment? i. Calculate the amount of dividends declared and paid during the year ended December 31, 2019. (Hint: Do a T-account analysis of retained earnings.) Capstone analytical review of Chapters 2-4. Calculate liquidity and profitability measures and explain various financial statement relationships for an excavation contractor Gerrard Construction Co. is an excavation contractor. The following summarized data (in thousands) are taken from the December 31, 2019, financial statements: For the Year Ended December 31, 2019: Net revenues $ 96,600 Cost of services provided 34,200 Depreciation expense 19,500 Operating income $ 42,900 Interest expense 11,400 Income tax expense 9,600 Net income $ 21,900 At December 31, 2019: Assets Cash and short-term investments $ 8,400 Accounts receivable, net 29,400 Property, plant, and equipment, net 232,200 Total assets $270,000 Liabilities and Stockholders' Equity Accounts payable $ 4,500 Income taxes payable 4,800 Notes payable (long term) 142,500 Paid-in capital 30,000 Retained earnings 88,200 Total liabilities and stockholders' equity $270,000 At December 31, 2018, total assets were $246,000 and total stockholders' equity was $97,800. There were no changes in notes payable or paid-in capital during 2019. Required: Page 135 a. The cost of services provided amount includes all operating expenses (selling, general, and administrative expenses) except depreciation expense. What do you suppose the primary reason was for management to separate depreciation from other operating expenses? From a conceptual point of view, should depreciation be considered a cost of providing services? b. Why do you suppose the amounts of depreciation expense and interest expense are so high for Gerrard Construction Co.? To which specific balance sheet accounts should a financial analyst relate these expenses? c. Calculate the company's average income tax rate. (Hint: You must first determine the earnings before taxes.) d. Explain why the amount of income tax expense is different from the amount of income taxes payable. e. Calculate the amount of total current assets. Why do you suppose this amount is so low, relative to total assets? f. Why doesn't the company have a Merchandise Inventory account? g. Calculate the amount of working capital and the current ratio at December 31, 2019. Assess the company's overall liquidity. h. Calculate ROI (including margin and turnover) and ROE for the year ended December 31, 2019. Assess the company's overall profitability. What additional information would you like to have to increase the validity of this assessment? i. Calculate the amount of dividends declared and paid during the year ended December 31, 2019. (Hint: Do a T-account analysis of retained earnings.)
