One day while you are in Bowden Brake Service getting your brakes repaired, Jim storms into his office, slamming doors and shouting about the local financial institutions. After a few minutes of building your courage, you approach Jim and ask him what the problem is. He shouts, "It's the financial institutions in this town! Not one of them will lend me the money I need to expand my business. They all said I needed to take a closer look at my financial position before I consider expanding. One of them said something about ratio analysis. I know a lot about cars and brakes, but what is ratio analysis?" You tell Jim you will perform a ratio analysis for the business if he gives you a free brake job. Jim provides you with the following financial statements (below). What type(s) of ratio analysis should you conduct with the financial statements you have been given in this problem? Using the equations in Chapter 11 in text - conduct a Current Ratio Analysis; conduct a Debt Ratio Analysis; conduct a Debt to Net Worth Ratio Analysis.

Were the bankers correct? Do you think Jim should expand the business?

Bowden Brake Service Income Statement Y ear EndingDecember 31, 2007 Net Sales Costs of Goods Sold $780,000 $104,000 526,480 $630,480 134,400 496,080 $283,920 Beginning Inventory Purchases Goods Available for Sale Ending Inventory Costs of Goods Sold ross Margin peraing Expenses: erating Expenses Rent Insurance Advertising ra Interest laxes (Property, etc.) Salaries & Admin. Expenses Utilities Supplies 24,000 5,250 6,000 2,500 72750 2,500 97,000 12,500 1360 Total Operating Expenses $223,860 Net Profit $60,060 Bowden Brake Service Bal ance Sheet December 31.2007