Question
Morksen Corp. has enjoyed modest success in penetrating the personal electronic devices market since it began operations a few years ago. A new line
Morksen Corp. has enjoyed modest success in penetrating the personal electronic devices market since it began operations a few years ago. A new line of devices introduced recently has been well received by customers. However, the company president, who is knowledgeable about electronics but not accounting, is concerned about the future of the company Although the company has a line of credit with the local bank, it currently needs cash to continue operations. The bank wants more information before it extends the company's credit line. The president has asked you, as the company's chief accountant, to evaluate the company's performance by using appropriate financial statement analysis, and to recommend possible courses of action for the company. In particular, the president wants to know how the company can obtain additional cash. Summary financial statements for the past three years are available below. MORKSEN CORP. Consolidated Statements of Earnings For the Years Ended December 31, (in thousands of dollars) Year 8 Year 7 Year 6) Sales $64,000 $56,000 $46,800 Cost of sales 50,000 43,000 36,000 Gross profit 14,000 13,000 10,800 Operating expenses before interest and income taxes 8,000 7,400 6,620 Interest expense 1,780 1,220 Earnings before income taxes 4,220 4,380 4,180 Income tax expense 1,900 2,040 1,940 Net earnings $ 2,320 $2,340 $ 2,240
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