Chapter 18 Financial Statements Analysis
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Bu 102 FINAL PROJECT Chapter 18 Financial Statement Analysis You are a commercial lending officer for a local bank. Lester Corporation has come to the bank requesting a $150.000 short term loan to meet operating needs. Lester has good, but not excellent credit and has been in business for a number of years, and has a history of profitablity, although not excessively profitable in recent years. The loan would be for one year at 9%. If the bank made the loan, the bank would earn $13,500 in interest income in addition to lending fees of approximately $3,000. At the end of the year, Lester is expected to repay the loan in full. Lester Corporation has presented a copy of the current year's income statement,cash flow and a comparative balance sheet for 2021 and 2020 . Other information is provided along with industry averages. REQUIRED: You are to: a. Compute all ratios for Lester listed in the industry averages. b. Compare each ratio to industry averages and rate on the following scale Below average Average Above average c. Provide an overal comment of the following on Lester's: LiquidityProfitablititySolvency d. Would you lend yeso? Why or Why not? Lester Corporation Balance Sheets For the Years Ended December 21, 2021 and 2020 \begin{tabular}{|l|r|r|} \hline & \multicolumn{1}{c|}{2021} & \multicolumn{1}{c|}{2020} \\ \hline Cash & \multicolumn{1}{c|}{160,000} & 80,000 \\ \hline Short-term investments & 75,000 & 200,000 \\ \hline Accounts receivable & 250,000 & 300,000 \\ \hline Inventory & 500,000 & 450,000 \\ \hline Pre-paid costs & 50,000 & 30,000 \\ \hline Property, Plant \& Equip. & 1,100,000 & 1,140,000 \\ \hline Total Assets & 2,135,000 & 2,200,000 \\ \hline \end{tabular} Liabilities and Stockholder Equity Lester Corporation Income Statement Cash Flow Statement For the Year Ended December 31,2021 2 Sales Revenue: Net Sales Revenue Cost of Goods Sold 5 Gross Profit Operating Expenses 3. Net Income before int, and taxes 9 Interest expense Net Income before tax Income tax expense 2 Net income 4 Other Information 5 Number of shares outstanding: 50,000 Ratio + 5 Number of shares outstanding: 50,000 Stock price $52 per share Industry Averages: Liquidity \begin{tabular}{|l|l} \hline 2 & Current ratio: \\ 3 & Accounts rec \\ 4 & Average colle \\ 5 & Inventory tur \\ 6 & Days in inven \\ 7 \\ \hline & Profitablity \\ \hline \end{tabular} Gross profit \% 1617% Profit margin Return on average stockholder equity \begin{tabular}{|l|} \hline 3.25:1 \\ \hline 10 times per year \\ 36 days \\ \hline 4 times per year \\ \hline 90 days \end{tabular} Earnings per share $2.50 to 2.75 per share Price earnings ratio 12 times earnings Solvency Debt to asset ratio 40% a. Compute: b. Compare Rating Computations Liquidity Current ratio for 2021 Accounts receivable turnover A verage collection period Inventory turnover Days in inventory Profitablity Gross profit \% Profit Margin Return on average stockholder equity Earnings per share Price earnings ratio Snlvonew d. Decide - Lend? Yes/No, Why
