$($CH$13$ Q$1)$: Financial Statement Analysis $(11$ points total$)$

Let's assume that as a financial analyst at the First Bank of Allentown, you are helping a client who is interested in investing into a local company. The company operates in the industry of manufacturing and selling IT equipment. The following financial statements are available for the company.

$1.$ Income Statement for the year ended on December $31,2023($in $$)$

Sales Revenue

$ $176,040$

Cost of goods sold

$(104,400)$

Gross profits

$71,640$

Depreciation Expense: Equipment

$(5,640)$

Depreciation Expense: Building

$(10,200)$

Patent Amortization Expense

$(1,200)$

Other Operating Expenses

$(31,600)$

Bond Interest Expense

$(1,572)$

Gain on sale of Land

$3,400$

Exceptional Loss

$(4,200)$

Income tax expense

$(7,260)$

Net income

$ $13,368$

$2.$ Balance Sheets $($in $$)$

Dec $31,2023$

Dec $31,2022$

Cash

$ $2,146$

$ $22,760$

Account Receivable $($net$)$

$15,200$

$11,200$

Inventory

$14,000$

$14,600$

Prepaid other operating expenses

$2,800$

$2,400$

Total Current Assets

$34,146$

$50,960$

Land

$36,400$

$20,000$

Equipment

$70,000$

$70,000$

Less: Accumulated Depreciation

$(29,640)$

$(24,000)$

Buildings

$298,000$

$288,000$

Less: Accumulated Depreciation

$(79,200)$

$(78,600)$

Patents $($net$)$

$8,800$

$10,000$

Total assets

$ $338,506$

$ $336,360$

Account payable

$ $14,600$

$ $17,200$

Interest payable

$600$

$-$

Dividend payable

$-$

$360$

Unearned Revenue

$4,200$

$3,840$

Accrued other Operating Expenses

$2,000$

$1,000$

Income tax payable

$2,260$

$2,000$

Total Current Liabilities

$ $23,660$

$ $24,400$

Bond payable, $6\%$

$20,000$

$-$

Discount on bonds payable

$(1,854)$

$-$

Total Liabilities

$ $41,806$

$ $24,400$

Common Stock

$ $218,200$

$ $216,000$

Retained earnings

$94,500$

$95,960$

Less: Treasury stock

$(16,000)$

$0$

Total Shareholders' Equity

$ $296,700$

$ $311,960$

Total Liabilities and Shareholders' Equity

$ $338,506$

$ $336,360$

$3.$ Statement of Cash flows for the year ended on December $31,2023($in $$)$

Operating Activities

Net income

$ $13,368$

Depreciation Expense: Equipment

$5,640$

Depreciation Expense: Building

$10,200$

Patent Amortization Expense

$1,200$

Gain on sale of Land

$(3,400)$

Increase in A$/$R

$(4,000)$

Decrease in Inv.

$600$

Increases in prepaid Other operating expenses

$(400)$

Decrease in A$/$P

$(2,600)$

Increase in income tax payable

$260$

Increase in interest payable

$600$

Increase in Unearned Revenue

$360$

Increase in accrued other operating expense

$1,000$

Bond discount amortization

$372$

Exception loss

$4,200$

Cash Flows from Operating Activities

$ $27,400$

Investing Activities

Payment for Purchase of Land

$ $(20,800)$

Proceeds from Sale of land

$7,800$

Payment for Purchase of building

$(30,000)$

Proceeds from building destroyed by earthquake

$6,200$

Cash Flows from Investing Activities

$ $(36,800)$

Financing Activities

Proceeds from issuance of bonds

$ $17,774$

Payment for Dividends

$(8,988)$

Payment for Purchase of Treasury Stock

$(20,000)$

Cash Flows from Financing Activities

$ $(11,214)$

Net decrease in cash

$ $(20,614)$

Beginning cash balance

$22,760$

Ending cash balance

$ $2,146$

Required:

$(8$ pts$)$ Based on the financial statements above, calculate the following ratios for the year ended December $31,2023.$ Round to $3$ decimal places unless otherwise stated.

Quick Ratio

Current Ratio

Debt$-$to$-$Equity Ratio

Times Interest Earned Ratio

Operating Cycle

Return on Total Assets

Total Assets Turnover Ratio

$(3$ pts$)$ Based on the financial statements and financial ratio analysis, provide a recommendation to your client regarding her$/$his planned investment. You can provide additional supporting evidence.

Industry average ratios are as follows:

Quick Ratio

$0\mathrm{.}512$

Current Ratio

$1\mathrm{.}221$

Receivable turnover

$15\mathrm{.}876$

Inventory turnover

$11\mathrm{.}212$

Payable turnover

$8\mathrm{.}433$

Debt$-$to$-$Equity

$0\mathrm{.}333$

Times Interest Earned Ratio

$11\mathrm{.}235$

Return on Total Assets

$6\mathrm{.}45\%$

Total Assets turnover

$0\mathrm{.}758$