CASE 1 - FINANCIAL STATEMENT ANALYSIS

BMFS 152 - Summer 2020

DUE DATE: August 05 2020

VALUE = 15%

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BMFS 152

RATIO ANALYSIS (STATEMENT ANALYSIS)

Summer 2020

Assume the role of a banker and you have funds to lend to only one company. You have narrowed your choices to a company in the air conditioning & heating business - either Reitzel Heating or Klassen. You are given the following financial data for both companies on the following page.

For each company calculate the following (3 pts):

Current Ratio

Acid test ratio

Inventory turnover

Days' sales in average receivable

Debt ratio

Times interest earned ratio

Return on shareholders' equity

Earnings per share of common stock

Price Earnings Ratio

Debt to Equity Ratio

Required:

1. Prepare a executive summary explaining which company you would loan the funds to. Justify your answer using the ratios that you calculated. (6 pts)

2. Would you consider becoming an equity holder for either company? Why or why not? (6 pts)

Selected income statement date for current year:

Reitizel Klassen

Net Sales (all on credit) 388,000 502,000

Cost of Goods sold 215,000 263,000

Income from Operations 82,000 145,000

Interest expense 19,000

Net Income 54,000 78,000

Selected balance sheet data at the beginning of the current

year:

Reitizel Klassen

Current Receivables, net 44,000 56,000

Inventories 97,000 96,000

Total assets 259,000 270,000

Preferred shares, $10.00 (2000 shares) 20,000

Common Shares (10,000 shares) 10,000

(6000 shares) 12,500

Total Shareholder's Equity 126,000 133,000

Selected balance sheet data at the end of the current year:

Reitizel Klassen

Current Assets:

Cash 25,000 21,000

Temporary Investments 22,000 16,000

Current receivables, net 42,000 46,000

Inventories 84,000 97,000

Prepaid Expenses 2,000 3,000

Total Current Assets 175,000 183,000

Total Assets 273,000 326,000

Total Current Liabilities 107,000 94,000

Total Liabilities 107,000 144,000

Preferred shares, $10.00 (2000 shares) 20,000

Common Shares (10,000 shares) 10,000

(6000 shares) 12,500

Total Shareholder's Equity 166,000 182,000

Market price per share of common stock 48 110

REITZEL KLASSEN

CURRENT RATIO

ACID TEST RATIO

INVENTORY TURNOVER RATIO

DAYS' SALES IN AVERAGE

RECEIVABLES

DEBT RATIO

TIMES INTEREST EARNED

RATIO

RETURN ON SHAREHOLDER'S

EQUITY

EARNINGS PER SHARE OF

COMMON STOCK

Price/Earning Ratio

Debit to Equity Ratio

EXECUTIVE SUMMARY

EQUITY HOLDER - WHY OR WHY NOT?