SP13. Kate is very pleased with the results of the first year of operations for Kate's Cards. She ended the year on a high note, with the company's reputation for producing quality cards leading to more busi- ness than she can currently manage. Kate is considering expanding and bringing in several employ- ces. In order to do this, she will need to find a larger location and purchase more equipment. All this means additional financing. Kate has asked you to look at her year-end financial statements as if you were a banker considering giving Kate a loan. Comment on your findings and provide calculations to support your comments. Sales revenue.. Cost of goods sold Gross profit... Operating expenses Wages Consulting. Insurance Utilities. Ront Depreciation.. Total operating expenses. Income from operations Interest expense. Income before income tax Income tax expense. Net income. KATE'S CARDS Income Statement Year Ended August 31 *********CO $185,000 106,000 79,000 18,000 11,850 1,200 2,400 14,400 3,250 51,100 27,900 900 27,000 5,400 $ 21,600 Assets Current assets Cash..... Accounts receivable. Inventory.... Prepaid insurance.. Total current assets **** Equipment Accumulated depreciation. Total assets... Liabilities Current liabilities Accounts payable. Unearned revenue Other current liabilities. Total current liabilities.. Note payable... Total liabilities.... Stockholders' equity Common stock.... Additional paid-in-capital Preferred stock.. Retained earnings Total stockholders' equity. Total liabilities and stockholders' equity KATE'S CARDS Balance Sheet August 31 $17,400 11,000 16,000 1,000 45,400 17,500 3,250 $59,650 $ 6,200 1,250 1,900 9,350 15,000 24,350 500 9,500 5,000 20,300 35,300 $59,650 Cash flow from operating activities Net income Add depreciation.. Increase in accounts receivable. Increase in inventory... Increase in prepaid expenses. Increase in accounts payable. Increase in uneared revenue Increase in other current liabilities KATE'S CARDS Statement of Cash Flows Year Ended August 31 Cash provided by operating activities.. Cash flow from investing activities Purchase of equipment... Cash used by investing activities. Cash flow from financing activities Proceeds from bank note Issuance of common stock.. Issuance of preferred stock.. Cash dividends.. Cash provided by financing activities. Net increase in cash... Cash at beginning of year.. Cash at end of year. $21,600 3,250 (11,000) (16,000) (1,000) 6,200 1,250 1,900 6,200 (17,500) (17,500) 15,000 10,000 5,000 (1,300) 28,700 17,400 $17,400 "Kate issued cash dividends on both the common stock and the preferred stock. There are 50 preferred shares outstanding and 500 common shares outstanding. The dividends that Kate paid were $6 per share on the preferred shares and $2 per share on the common shares. 1 2 3 4 -5 1 Gross profit percentage 2 Return on sales 3 Asset turnover 4 Return on assets 5 Return on common stockholders' equity 6 Current ratio 7 Quick ratio 8 Operating cash flow to current liabilities ratio 9 Accounts receivable turnover 10 Average collection period 11 Inventory turnover 12 Days' sales in inventory 13 Debt to equity ratio 14 Times interest earned ratio 15 Operating cash flow to capital expenditures ratio Analysis: Formula Ratio