PROBLEM 14-15. Comprehensive Ratio Analysis [LO 3] Refer to the financial data for the Bao Corporation in Problem 14-13. You have just been hired as a loan officer at the Sussex Bank. Your supervisor has given you a file containing a request from Bao Corporation for a $30,000 5-year loan. Use the financial statements for the Bao Corporation to answer the questions that follow. Lui Chun, who just a year ago was appointed president of Bao Corporation, informs you that although the company has had some problems in the past, it is turning things around, as evidenced by the 17 percent increase in sales and the improved earnings results between last year and this year. Ms. Chun feels that with her leadership and the improved technology (which will come from the equip- ment that the $30,000 will allow the company to purchase), profits will be even stronger in the future. Wanting to succeed in your first assignment, you decide to gather all the necessary informa- tion for a complete analysis. You determine that the following ratios are typical for the industry in which Bao Corporation operates: Current ratio 2.6 to 1 Acid-test (quick) ratio 1.2 to 1 Accounts receivable turnover 8.5 times Inventory turnover 6.2 times Return on assets 12.1% Debt-to-equity ratio 0.68 to 1 Times interest earned 6.8 alyzing Financial Statements: A Managerial Perspective REQUIRED a. Compute each of the above ratios for Bao Corporation. b. Summarize the results of these ratios. c. Based on this analysis, would you recommend that the loan be approved? PROBLEM 14-13. Common-Size Financial Statements [LO 1] The financial statements for the Bao Corporation are given below: Bao Corporation Comparative Balance Sheets December 31, 2018, and 2017 2018 2017 $ $ 1,900 9,100 11,300 560 22,860 1,300 7,300 9,100 250 17,950 86,000 48,600 134,600 $157,460 86,000 52,000 138,000 $155,950 Assets Current assets: Cash Accounts receivable, net Inventory Prepaid expenses Total current assets Property and equipment: Land Buildings and equipment, net Total property and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued expenses Notes payable, short term Total current liabilities Long-term liabilities: Bonds payable Notes payable Total liabilities Stockholders' equity: Common stock Additional paid-in capital Total paid-in capital Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 17,600 1,620 $ 21,000 4,430 220 25,650 540 19,760 5,300 34,400 59,460 5,300 35,000 65,950 11,000 19,000 30,000 68,000 98,000 $157,460 11,000 19,000 30,000 60,000 90,000 $155,950 Bao Corporation Comparative Income Statement For the Years Ended December 31, 2018, and 2017 2018 2017 $130,000 67,000 63,000 $111,000 61,000 50,000 Sales Cost of goods sold Gross margin Operating expenses: Selling expenses Administrative expenses Total operating expenses Income from operations Interest expense Income before taxes Less income taxes Net income 24,500 17,500 42,000 21,000 5,600 15,400 6,160 9,240 20,000 14,600 34,600 15,400 4,700 10,700 4,280 6,420 $ $ REQUIRED a. Present the balance sheet with each account balance as a percent of total assets. b. Present the income statement with each balance as a percent of sales. c. Comment on the results of any significant findings. d. What types of issues does the company seem to be facing? e. What suggestions do you have for the Bao Corporation
