CM Corporation
		Balance Sheet
					December 31, 2011
			Assets				%
Current assets
Cash and cash equivalents				$120,670
Accounts receivable				576,454
Allowance for doubtful accounts				(84,975)
Inventory				847,460
Prepaid expenses				18,841
Other current assets				4,612
	Total current assets					1,483,062	0.65
Property, plant and equipment				1,100,105
Accumulated depreciation				(591,965)
	Net fixed assets					508,140	0.22
Other Assets
Investments				100,150
Goodwill				87,740
Other intangible assets				108,700
						296,590	0.13
	Total assets					$2,287,792	1.00
			Liabilities and Stockholders' Equity
Current liabilities
Accounts payable				$315,395
Dividends payable				48,000
Unearned revenue				73,500
Accrued liabilities				408,303
	Total current liabilities					845,198	0.37
Long-term liabilities						278,525	0.12
Stockholders' equity
Contributed capital
Common stock, $2 par value (4,000,000 shares
authorized),460,000 shares issued of which 440,000 shares
are outstanding				920,000
Paid-in capital common stock				105,000
	Total contributed capital			1,025,000
Accumulated other comprehensive income				0
Retained earnings				539,069
Less common stock in treasury, at cost				(400,000)
	Total stockholders' equity					1,164,069	0.51
	Total liabilities and stockholders' equity					$2,287,792	1.00
		CM Corporation
		Income Statement
		For the Years Ended
					2011		%
Revenue
Net product sales revenue				$8,984,852
Service revenue				975,860
	Total revenue					9,960,712	1.00
Cost of goods sold
Products				5,356,018
Services				445,637
	Total cost of goods sold					5,801,655
Gross profit						4,159,057	0.42
Operating expenses
Advertising				123,869
Bad debt expense				28,640
Depreciation and amortization				125,500
Dues and subscriptions				19,730
Equipment expenses				64,781
Insurance				90,144
Legal and accounting fees				87,650
Miscellaneous				12,010
Office expense				214,138
Payroll taxes				131,170
Property taxes				93,400
Repair and maintenance				37,543
Research and development				278,000
Telephone				21,085
Travel and entertainment				60,402
Utilities				37,876
Wages - Employees				954,688
Wages - Officers				650,000
	Total operating expenses					3,030,626	0.30
Income (loss) from operations						1,128,431	0.11
Other income and (expense)
Interest expense				(27,800)
Gain (loss) on disposal of assets				(26,950)
Investment income				9,230
	Total other income (expense)					(45,520)
Income (loss) before income taxes						1,082,911	0.11
Income tax (expense) benefit						(379,019)
	Net income (loss)					$703,892	0.07
	CM Corporation
	Statement of Cash Flows
	( Indirect Method )
	For the Years Ended
						2011
Cash flows from operating activities
Net income (loss)						$703,892
Adjustments to reconcile net income
to Net cash provided from operating activities
	Depreciation and amortization					125,500
	Net (gain) loss on assets					26,950
	(Increase) decrease in accounts receivable					(188,643)
	Increase (decrease) in allowance for doubtful accounts					(7,564)
	(Increase) decrease in inventory					(125,360)
	(Increase) decrease in prepaid expenses					(14,650)
	(Increase) decrease in other current assets					4,612
	Increase (decrease) in accounts payable					263,400
	Increase (decrease) in unearned revenue					46,820
	Increase (decrease) in interest payable					3,456
	Increase (decrease) in wages and payroll taxes payable					(5,478)
	Increase (decrease) in income taxes payable					(278,950)
Total adjustments						(149,907)
Net cash provided by operating activities						553,985
Cash flows from investing activities
	(Purchase) of fixed assets					(274,300)
	(Purchase) of intangibles					0
	(Purchase) of investments					(12,650)
Net cash used by investing activities						(286,950)
Cash flows from financing activities
	Dividends paid					(32,000)
Net cash used by financing activities						(32,000)
Net increase (decrease) in cash and cash equivalents						235,035
Cash and cash equivalents at beginning of period						(114,365)
Cash and cash equivalents at end of period						$120,670

General Ledger Account Names		Balance 12/31/12			2013 Projections			Proposed Trial Balance 2013			Proposed ajes			Forcasted Trial Bal 12/31/13
Balance Sheet Accounts	Debit		Credit	Debit	#	Credit	Debit		Credit	Debit	JE#	Credit	Debit		Credit
Cash and cash equivalents	72,337			170,000			242,337						242,337
Accounts Receivable	782,080			133,195			915,275						915,275
Allowance for doubtful accounts			102,470			16,530			119,000						119,000
Inventory	1,340,902			404,683			1,745,585						1,745,585
Prepaid expenses	17,174						17,174						17,174
Other Current Assets	16,063						16,063						16,063
Property, Plant and Equipment	1,560,192					365,000	1,195,192						1,195,192
Accum Depr			739,085	205,500		132,500			666,085						666,085
Investments	140,186						140,186						140,186
Goodwill	397,740						397,740						397,740
Other intangible assets	253,900					5,000	248,900						248,900
Accounts Payable			1,169,343			30,657			1,200,000						1,200,000
Dividends payable			110,000			5,000			115,000						115,000
Accrued liabilities			340,759			187,991			528,750						528,750
Unearned revenue			102,860			34,200			137,060						137,060
Long term liabilities			588,500	80,000					508,500						508,500
Common Stock			920,000						920,000						920,000
Paid-in capital common stock			105,000						105,000						105,000
Treasury Stock	400,000						400,000						400,000
Retained Earnings			802,557						802,557						802,557
Dividends				115,000			115,000						115,000
Net Income			0						331,500						331,500
	4,980,574		4,980,574				5,433,452		5,433,452				5,433,452		5,433,452
Income Statement Accounts
Product sales revenue						9,100,000			9,100,000						9,100,000
Service revenue						975,000			975,000						975,000
Product sales returns & discounts				500,000			500,000						500,000
Products cost of goods sold				5,400,000			5,400,000						5,400,000
Service cost of goods sold				450,000			450,000						450,000
Bad debt expense				20,000			20,000						20,000
Depreciation and amortization				137,500			137,500						137,500
Gain/loss on disposal						10,000			10,000						10,000
Income tax expense				178,500			178,500						178,500
Insurance				80,000			80,000						80,000
Interest expense				48,000			48,000						48,000
Investment income						10,500			10,500						10,500
Other operating expenses				900,000			900,000						900,000
Research and development				200,000			200,000						200,000
Wages- employees				1,050,000			1,050,000						1,050,000
Wages - Officers				800,000			800,000						800,000
Net (Income) Loss			0						(331,500)						(331,500)
	0		0				9,764,000		9,764,000	0		0	9,764,000		9,764,000
				10,872,378		10,872,378
						0

As indicated in Chapter 4, you have been participating in a forecasting meeting with CM² management. You know you are going to be responsible for information on liquidity and future cash flows. You want to be sure to appear knowledgeable, so you carry out the following analysis.

Part I: Analysis of Balance Sheet and Statement of Cash Flows

Instructions

Access file 4a at the website. This file contains spreadsheets for 2011 and 2012, along with the original projections for 2013.

(a) Calculate the liquidity ratios (current ratio, quick ratio) and the solvency ratios (total debt to equity, total debt to total assets) for each of the three years. The current ratio is useful in assessing the liquidity of the firm since it shows the firms ability to pay off its short-term liabilities with short-term (readily accessible) assets. The debt ratios described are useful in assessing the firms ability to pay off all of their debt in that they show the relationship of the debt obligations both to the firms equity and to their total asset position. Discuss possible causes of any changes you observe in these relationships over time.

(b) Compute free cash flow for each of the three years. Comment on investment decisions and cash management, using the three years of statements of cash flows provided.