Morning Star Canoe & Kayak Company: Analysis of Financial Statements In the fall of 2021, Sue Macintosh, owner of the Morning Star Canoe & Kayak Company, approached a local bank for additional funding of $1.5 million to meet the growing requirements of her canoe and kayak manufacturing company. Revenue had increased four-fold from $300,000 to $1,200,000 in three years and net income (N/1) had grown from $37,100 to $93,100 during the same period. Sue confidently discussed her future plans and the financial needs of her company with the bank manager. In her discussion with the bank manager, Sue described the development of her company and the growth opportunities for the canoe and kayak market in Canada and the northern United States. Sue proudly described the performance of her company, which she believed was doing well in a highly competitive industry environment, to the bank manager. The manager looked over the financial records of Morning Star, including an income statement and balance sheet (see Exhibits 1 and 2), and gave them to his loan officer to analyze. He assured Sue that, once the documents were analyzed, he would get back to her with a decision about her loan. He instructed the loan officer to analyze the performance of the company and evaluate the loan application submitted by Sue as soon as possible and to provide a recommendation about the loan. EXHIBIT 1: INCOME STATEMENT, July 1 to June 30 (IN THOUSANDS) 2018-2019 100,000 200,000 300,000 180,000 120,000 40,000 2019-2020 150,000 600,000 750,000 450,000 300,000 100,000 2020-2021 200,000 1,000,000 1,200,000 720,000 480,000 200,000 Sales - Cash Sales - Credit Total sales Cost of goods sold Gross profit Selling, general, and administrative expenses Depreciation Operating income Interest expense Income before tax Tax@30% Net income 15,000 65,000 12,000 53,000 15,900 37,100 40,000 160,000 40,000 120,000 36,000 84,000 75,000 205,000 72,000 133,000 39,900 93,100 EXHIBIT 2: BALANCE SHEET (IN THOUSANDS) June 30, 2019 June 30, 2020 June 30, 2021 Assets Cash and cash equivalents Accounts receivable Inventories Current assets Property, Plant and Equipment (net of accumulated depreciation) Total assets 132,100 40,000 45,000 217,500 150,000 191,100 150,000 120,000 461,100 400,000 154,200 300,000 260,000 714,200 750,000 367,100 861,100 1,464,200 Liabilities and Shareholder's equity Account payable Current portion of LT debt Current liabilities Long-term debt Total liabilities Share capital common Retained earnings Total shareholders' equity Total liabilities and equity 30,000 50,000 80,000 100,000 180,000 150,000 37,100 187,100 367,100 90,000 100,000 190,000 400,000 590,000 150,000 121,100 271,100 861,100 200,000 200,000 400,000 700,000 1,100,000 150,000 214,200 364,200 1,464,200 A GO EXHIBIT 3: INDUSTRY AVERAGES 2:1 Current ratio Quick ratio Accounts receivable turnover ratio Average collection period Inventory turnover ratio Days in inventory Financial debt to equity ratio Operating liabilities to equity ratio Gross profit ratio Net profit ratio Return on equity Return on total assets Total asset turnover ratio Fixed asset turnover ratio Times interest earned ratio 1.5:1 6 times 60.8 days 7 times 50.7 days 120% 30% 40% 12% 40% 24% 2.0 3 5 Your analysis and report should include: 1. Statements of cash flows for the years ending June 30 of 2019, 2020 and 2021. Morning Star Canoe & Kayak Company: Analysis of Financial Statements In the fall of 2021, Sue Macintosh, owner of the Morning Star Canoe & Kayak Company, approached a local bank for additional funding of $1.5 million to meet the growing requirements of her canoe and kayak manufacturing company. Revenue had increased four-fold from $300,000 to $1,200,000 in three years and net income (N/1) had grown from $37,100 to $93,100 during the same period. Sue confidently discussed her future plans and the financial needs of her company with the bank manager. In her discussion with the bank manager, Sue described the development of her company and the growth opportunities for the canoe and kayak market in Canada and the northern United States. Sue proudly described the performance of her company, which she believed was doing well in a highly competitive industry environment, to the bank manager. The manager looked over the financial records of Morning Star, including an income statement and balance sheet (see Exhibits 1 and 2), and gave them to his loan officer to analyze. He assured Sue that, once the documents were analyzed, he would get back to her with a decision about her loan. He instructed the loan officer to analyze the performance of the company and evaluate the loan application submitted by Sue as soon as possible and to provide a recommendation about the loan. EXHIBIT 1: INCOME STATEMENT, July 1 to June 30 (IN THOUSANDS) 2018-2019 100,000 200,000 300,000 180,000 120,000 40,000 2019-2020 150,000 600,000 750,000 450,000 300,000 100,000 2020-2021 200,000 1,000,000 1,200,000 720,000 480,000 200,000 Sales - Cash Sales - Credit Total sales Cost of goods sold Gross profit Selling, general, and administrative expenses Depreciation Operating income Interest expense Income before tax Tax@30% Net income 15,000 65,000 12,000 53,000 15,900 37,100 40,000 160,000 40,000 120,000 36,000 84,000 75,000 205,000 72,000 133,000 39,900 93,100 EXHIBIT 2: BALANCE SHEET (IN THOUSANDS) June 30, 2019 June 30, 2020 June 30, 2021 Assets Cash and cash equivalents Accounts receivable Inventories Current assets Property, Plant and Equipment (net of accumulated depreciation) Total assets 132,100 40,000 45,000 217,500 150,000 191,100 150,000 120,000 461,100 400,000 154,200 300,000 260,000 714,200 750,000 367,100 861,100 1,464,200 Liabilities and Shareholder's equity Account payable Current portion of LT debt Current liabilities Long-term debt Total liabilities Share capital common Retained earnings Total shareholders' equity Total liabilities and equity 30,000 50,000 80,000 100,000 180,000 150,000 37,100 187,100 367,100 90,000 100,000 190,000 400,000 590,000 150,000 121,100 271,100 861,100 200,000 200,000 400,000 700,000 1,100,000 150,000 214,200 364,200 1,464,200 A GO EXHIBIT 3: INDUSTRY AVERAGES 2:1 Current ratio Quick ratio Accounts receivable turnover ratio Average collection period Inventory turnover ratio Days in inventory Financial debt to equity ratio Operating liabilities to equity ratio Gross profit ratio Net profit ratio Return on equity Return on total assets Total asset turnover ratio Fixed asset turnover ratio Times interest earned ratio 1.5:1 6 times 60.8 days 7 times 50.7 days 120% 30% 40% 12% 40% 24% 2.0 3 5 Your analysis and report should include: 1. Statements of cash flows for the years ending June 30 of 2019, 2020 and 2021