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Connor Ltd. is a large private company owned by the Connor family. It operates a manufacturing business in northern Ontario. It has applied to the

Connor Ltd. is a large private company owned by the Connor family. It operates a manufacturing business in northern Ontario. It has applied to the ICB bank for a new loan of $100 million to expand its manufacturing facilities. You are a financial analyst with ICB. You have just been given an assignment to analyze Connors Year 7 financial statements and to identify any concerns about Connors performance and financial condition. The following are financial statements for Connor Ltd. for Year 7:

BALANCE SHEETS (In 000s)
Year 7 Year 6
Asset
Cash $ 12,000 $ 32,000
Accounts receivable 206,000 196,000
Inventory 324,000 314,000
Property, plant and equipment 307,000 264,000
$ 849,000 $ 806,000
Liabilities and Shareholders Equity
Accounts payable $ 204,000 $ 210,400
Other accrued liabilities 67,000 55,600
Bonds payable 194,000 194,000
Common shares 173,500 177,000
Retained earnings 210,500 169,000
$ 849,000 $ 806,000
INCOME STATEMENT (In 000s)
Year 7 Year 6
Sales $ 1,970,000 $ 1,920,000
Cost of goods sold (1,364,000 ) (1,284,000 )
Gross margin 606,000 636,000
Depreciation expense (45,000 ) (39,000 )
Other expenses (410,000 ) (429,000 )
Income tax expense (60,400 ) (70,560 )
Net income $ 90,600 $ 97,440

Additional Information

  • Connor uses the straight-line method when depreciating its property, plant, and equipment.

  • Interest expense was $10,000 for Year 6 and Year 7.

Required:

(a) Convert Connors financial statements for both Year 7 and Year 6 into common-sized financial statements using: (Input all amounts as positive values. Omit $ sign in your response. Round the final answer to the nearest whole dollar.)

(i) Vertical analysis

BALANCE SHEETS
Year 7 Year 6
Asset
Cash $ $
Accounts receivable
Inventory
Property, plant and equipment
$ $
Liabilities and Shareholders Equity
Accounts payable $ $
Other accrued liabilities
Bonds payable
Common shares
Retained earnings
$ $
INCOME STATEMENT
Year 7 Year 6
Sales $ $
Cost of goods sold
Gross margin
Depreciation expense
Other expenses
Income tax expense
Net income $ $

(ii) Horizontal analysis

BALANCE SHEETS
Year 7 Year 6
Asset
Cash $ $
Accounts receivable
Inventory
Property, plant and equipment
$ $
Liabilities and Shareholders Equity
Accounts payable $ $
Other accrued liabilities
Bonds payable
Common shares
Retained earnings
$ $
INCOME STATEMENT
Year 7 Year 6
Sales $ $
Cost of goods sold
Gross margin
Depreciation expense
Other expenses
Income tax expense
Net income $ $

(c) Calculate the current ratio, debt-to-equity ratio, return on assets, and return on equity for both Year 7 and Year 6. (Enter your answers in thousands. For E.g., 1,000,000 should be entered as 1,000. Round the final answers for all the ratios to two decimal places. Omit $ sign in your response.)

Year 7 Year 6
$ $
Current ratio = =
$ $
$ $
Debt to equity = =
$ $
$ $
Return on assets = % = %
$ $
$ $
Return on equity = % = %
$ $

Note- please attempt all the subparts of the question for the positive feedback. I will really appreciate your help.

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