PART 2: PERFORMANCE MEASUREMENT AND RATIO ANALYSIS (25 POINTS) Mr. John Miller is the Director of Better Buy Inc (BB Inc.), a canadian store specialized in selling electronic devices and appliances The management of BB Inc. Needs a loan to finance the working capital of the business. The bank is asking to Mr. John to provide the financial statements of the two last years. Here is below the financial statements of the two past years, 2019 and 2020, of BB inc. Better Buy Inc. Balance sheet as at december (Not audited - see notice to readers) 2019 2020 Assets (in thousand $) Short term assets Cash accounts receivable Inventory $ $ 12,278 8,454 32,707 47,161 5,000 16,354 53.438 68,515 long term assets Fixed assets - equipment Cummulated depreciation - Equipment Fixed assets - Net 10,040 3,961 6,080 10.040 4,447 5,593 Total assets 59,518 74.108 Liabilities Short term liabilities Accounts payable Short term loans 12,586 7,899 10,069 6,320 Long term liabilities Long term loans 34,835 54,835 Total liabilities 55,320 71,224 Equity Common shares Retained earnings Total Equity 4.194 4 2,880 4,198 2,884 Liabilities plus equity 59,518 $ 74,108 Better Buy Inc. Retained earnings as at december 31st. (Not audited - see notice to readers) 2019 2020 (in thousand $) $ Retained earnings - Opening balance Profit of the year Dividends Retained earnings - Closing balance 1,921 2,272 4,194 3,686 5,000 2.880 $ 4,194 S Better Buy Inc. Income statement for the year ending december 31st. (Not audited - see notice to readers) 2019 Revenues 2020 (in thousand $) Sales $ 217,830 228,722 217,830 228.722 Cost of goods sold opening balance inventory Purchases Closing balance inventory 24,628 151,542 32.707 32,707 132,316 16,354 Cost of goods sold 143,463 148,669 Gross margin 74,367 80,053 General and Administration expenses 1,695 2,259 7.984 5,173 916 Depreciation expense Interest and bank fees Office supply Travel fees Food and representation Professional fees Publicity Salary (commission to sales staff) licence fees Telecommunication Donations 1,293 17,102 32,676 955 1,061 486 2,304 8,144 5,276 934 1,319 17,444 33,983 974 1,082 3,500 448 Total-General and Administration expenses 71,562 75,446 Profit before tax Income tax (19%) 2,805 533 4,607 921 Profit of the year $ 2.272 $ 3,686 WORK TO DO FOR PART 2 Importante notice : all the numbers of the financial statements are in thousands of S. 1) Use the financial statements provided and horizontal analysis to highlight, in maximum 10 lines, the major performance points of BB Inc. (5 points) 2) Use the financial statements provided and vertical analysis to highlight, in maximum 10 lines, the major performance points of BB Inc. (5 points) 3-a) Calculate the following ratios : 5 points Liquidity: profitability: Solvency: current ratio, acid test ratio profit margin ratio, return on assets, return on equity Debt ratio, equity ratio 3-b) using the ratios calculated above and your analysis in questions 1 and 2, should BB inc ask for a debt financing? Why or why not? (borrower's point of view) 5 points. 3-c) using the ratios calculated above and your analysis in questions 1 and 2 should the bank give a loan to BB inc? Why or why not? (investor's point of view) 5 points. Note: Here are below the ratios of the industry: Current ratio 1,6:1 Debt ratio 35% Acid-test ratio 1,1:1 equity ratio 65% profit margin ratio 14% return on assets (ROA) return on equity (ROE) 20% 33% PART 2: PERFORMANCE MEASUREMENT AND RATIO ANALYSIS (25 POINTS) Mr. John Miller is the Director of Better Buy Inc (BB Inc.), a canadian store specialized in selling electronic devices and appliances The management of BB Inc. Needs a loan to finance the working capital of the business. The bank is asking to Mr. John to provide the financial statements of the two last years. Here is below the financial statements of the two past years, 2019 and 2020, of BB inc. Better Buy Inc. Balance sheet as at december (Not audited - see notice to readers) 2019 2020 Assets (in thousand $) Short term assets Cash accounts receivable Inventory $ $ 12,278 8,454 32,707 47,161 5,000 16,354 53.438 68,515 long term assets Fixed assets - equipment Cummulated depreciation - Equipment Fixed assets - Net 10,040 3,961 6,080 10.040 4,447 5,593 Total assets 59,518 74.108 Liabilities Short term liabilities Accounts payable Short term loans 12,586 7,899 10,069 6,320 Long term liabilities Long term loans 34,835 54,835 Total liabilities 55,320 71,224 Equity Common shares Retained earnings Total Equity 4.194 4 2,880 4,198 2,884 Liabilities plus equity 59,518 $ 74,108 Better Buy Inc. Retained earnings as at december 31st. (Not audited - see notice to readers) 2019 2020 (in thousand $) $ Retained earnings - Opening balance Profit of the year Dividends Retained earnings - Closing balance 1,921 2,272 4,194 3,686 5,000 2.880 $ 4,194 S Better Buy Inc. Income statement for the year ending december 31st. (Not audited - see notice to readers) 2019 Revenues 2020 (in thousand $) Sales $ 217,830 228,722 217,830 228.722 Cost of goods sold opening balance inventory Purchases Closing balance inventory 24,628 151,542 32.707 32,707 132,316 16,354 Cost of goods sold 143,463 148,669 Gross margin 74,367 80,053 General and Administration expenses 1,695 2,259 7.984 5,173 916 Depreciation expense Interest and bank fees Office supply Travel fees Food and representation Professional fees Publicity Salary (commission to sales staff) licence fees Telecommunication Donations 1,293 17,102 32,676 955 1,061 486 2,304 8,144 5,276 934 1,319 17,444 33,983 974 1,082 3,500 448 Total-General and Administration expenses 71,562 75,446 Profit before tax Income tax (19%) 2,805 533 4,607 921 Profit of the year $ 2.272 $ 3,686 WORK TO DO FOR PART 2 Importante notice : all the numbers of the financial statements are in thousands of S. 1) Use the financial statements provided and horizontal analysis to highlight, in maximum 10 lines, the major performance points of BB Inc. (5 points) 2) Use the financial statements provided and vertical analysis to highlight, in maximum 10 lines, the major performance points of BB Inc. (5 points) 3-a) Calculate the following ratios : 5 points Liquidity: profitability: Solvency: current ratio, acid test ratio profit margin ratio, return on assets, return on equity Debt ratio, equity ratio 3-b) using the ratios calculated above and your analysis in questions 1 and 2, should BB inc ask for a debt financing? Why or why not? (borrower's point of view) 5 points. 3-c) using the ratios calculated above and your analysis in questions 1 and 2 should the bank give a loan to BB inc? Why or why not? (investor's point of view) 5 points. Note: Here are below the ratios of the industry: Current ratio 1,6:1 Debt ratio 35% Acid-test ratio 1,1:1 equity ratio 65% profit margin ratio 14% return on assets (ROA) return on equity (ROE) 20% 33%