a. Comment on the statement of cash flows. b. Compute the following liquidity ratios for 2007 1. Current ratio 2. Acid-test ratio 3. Operating cash flow/current maturities of long-term debt and current notes payable 4. Cash ratio c. Compute the following debt ratios for 2007: 1. Times interest earned 2. Debt ratio 3. Operating cash flow/total debt d. Compute the following profitability ratios for 2007: 1. Return on assets (using average assets) 2. Return on common equity (using average common equity) e. Compute the following investor ratio for 2007: Operating cash flow/cash dividends. f. Give your opinion as to the liquidity of Bernett. g. Give your opinion as to the debt position of Bernett. h. Give your opinion as to the profitability of Bernett. i. Give your opinion as to the investor ratio. 1. Give your opinion of the alternatives Bernett has in order to ensure that it can pay bills as they come due. Assets Cash Accounts receivable, net Inventory Prepaid expenses Land Building Accumulated depreciation Total assets BERNETT COMPANY Balance Sheet December 31, 2007 and 2006 Liabilities and Stockholders' Equity Accounts payable Income taxes payable Accrued liabilities Bonds payable (current $10,000 at 12/31/07) Common stock Retained earnings Total liabilities and stockholders' equity 2007 $ 5,000 92,000 130,000 4,000 30,000 170,000 (20,000) $411,000 $ 49,000 5,000 6,000 175,000 106,000 70,000 $411,000 2006 $ 28,000 70,000 85,000 6,000 10,000 30,000 (10,000) $219,000 $ 44,000 4,000 5,000 20,000 96,000 50,000 $219,000 BERNETT COMPANY Income Statement For Year Ended December 31, 2007 Sales Less expenses: Cost of goods sold (includes depreciation of $4,000) Selling and administrative expenses (includes depreciation of $6,000) Interest expense Total expenses $500,000 310,000 80,000 11,000 401,000 Income before taxes Income tax expense Net income 99,000 30,000 $ 69,000 BERNETT COMPANY Statement of Cash Flows For Year Ended December 31, 2007 Net cash flow from operating activities: Net income Noncash expenses, revenues, losses, and gains included in income: Depreciation Increase in receivables Increase in inventory Decrease in prepaid expenses Increase in accounts payable Increase in income taxes payable Increase in accrued liabilities Net cash flow from operating activities Cash flows from investing activities: Increase in land Increase in buildings Net cash used by investing activities Cash flows from financing activities: Bond payable increase Common stock increase Cash dividends paid Net cash provided by financing activities Net decrease in cash $ 69,000 10,000 (22,000) (45,000) 2,000 5,000 1,000 1,000 $ (20,000) (140,000) $ 155,000 10,000 (49,000) $ 21,000 (160,000) 116,000 $ (23,000)