Please refer to the income statement and balance sheet for the Great Service Cleaning and Maintenance Company available here.

Perform a financial ratio analysis of the company using the following ratios: (1) Gross profit margin, (2) Current ratio, and (3) Debt ratio. From research independent from the textbook, find two other ratios to calculate. Define them and explain their purpose and how they add value to your analysis.

Select significant lines from the financial statements and provide an observation of their trends (Is the account increasing or decreasing in value? What does this mean?)

Draw some conclusions based on your observations. For instance, why do you think the assets of the company went up from 2013 to 2014? What implications does this have? What follow-up questions do you have to ask the companys management?

Support your observations with data and logic. Discuss what limitations exist with the informational material provided. What other material would be important to your trend analysis?

Balance sheet

ASSETS

2014

2013

CURRENT ASSETS

Cash

456,500

222,400

Cash increase - due to no dividends paid in 2014

Receivables

3,936,400

3,320,000

Inventory

89,800

100,200

Other assets

119,500

84,300

Total current assets

4,602,200

3,726,900

Current ratio 2013: 1.21

Current ratio 2014: 1.47

LONG TERM ASSETS

Note Receivable

380,600

280,700

Some additional debt acquired in 2014

Equipment (net of depreciation)

975,000

1,017,800

Total long term assets

1,355,600

1,298,500

TOTAL ASSETS

5,957,800

5,025,400

LIABILITIES AND STOCKHOLDERS' EQUITY

Debt ratio 2013:

0.7

Debt ratio 2014:

0.6

CURRENT LIABILITIES

Accounts payable

2,783,100

2,805,700

Note payable (current maturities)

177,550

172,550

Other accrued liabilities

165,300

114,600

Total current liabilities

3,125,950

3,092,850

LONG TERM LIABILITIES

Notes payable (long term)

354,800

354,800

Long term accrued liabilities

289,550

220,250

Total long term liabilities

644,350

575,050

TOTAL LIABILITIES

3,770,300

3,667,900

STOCKHOLDERS' EQUITY

Common stock

300,000

300,000

Retained Earnings

1,887,500

1,057,500

Total stockholders' equity

2,187,500

1,357,500

TOTAL LIABILITIES AND STOCKHOLDERS EQUITY

5,957,800

5,025,400

Income sheet

		2014		2013
					Comments
Service Contract Revenues		9,700,000		6,295,400	Increase in contracts
Service Contract Costs		(7,503,100)		(4,957,800)
Gross Profit		2,196,900		1,337,600	Gross profit margin 2013: 21.2%
					Gross profit margin 2014: 22.6%
General and Administrative Expenses		(896,000)		(756,000)
Operating Income		1,300,900		518,600	Increase in profit - see above comment
Gain on sale of equipment		59,900		7,700
Interest expense		(69,500)		(70,800)
Other expense		(9,600)		(63,100)
Income before taxes		1,281,700		455,400
Taxes		(451,700)		(300,900)
Net Income		830,000		154,500	Increase in net income from 2013-2014
Retained Earnings, Beginning Balance		1,057,500		1,053,000
		1,887,500		1,207,500
Less: Dividends paid		0		(150,000)	No dividend paid in 2014
Retained Earnings, Ending Balance		1,887,500		1,057,500