This is a case study. Answer questions specifically as they relate to the case. Group assignment. 1 submission per group.

The case study is in pdf format. Instruction and hints are in the word file.

Drop your answers in the assignment drop box.

Write your Group number and names of the members with Student IDs on the first page of your answers.

All groups go through the attached case (in PDF format) and answer the questions at the end.

Hints:

1. Calculate liquidity ratios, return on investment, return on equity, asset turnover ratio, inventory turnover ratio, working capital.
2. Then, if you understand what these ratios mean, use them to evaluate performance and answer Q1.
3. For Q2, the above ratio analysis will indicate what changed between 2010 and 2011.
4. Review the class notes on finance.

Marks:

1. Calculation of the ratios . 10 points (Q1: partly)
2. Showing understanding of what the ratios mean (Q1, Q2) ... 20 point

Case C Northern Lights Communications

1

Case C

Northern Lights Communications

Phone Problems

The following financial statements are for the Northern Lights Corporation. The company

provides pay phone service at many of the small convenience stores in Ontario and Manitoba.

The business was meeting plan until 2011 when a problem developed.

Balance Sheet

ASSETS

2010

2011

Current Assets:

Cash and cash equivalents

$ 668,778

$ 592,491

Accounts receivable

4,453,192

3,888,621

Inventories

137,036

112,699

Prepaid expenses and

other current assets

411,990

407,274

Total current assets:

$ 5,670,996

$5,001,085

Fixed assets:

Property, plant, and

equipment (net)

$12,935,453

$16,466,001

Site licenses

1,941,467

3,771,571

Investments in affiliates

164,549

251,672

Total fixed assets

$15,041,469

$20,489,244

Other assets

681,754

455,488

TOTAL ASSETS

$21,394,219

$25,945,817

DEBT (LIABILITIES) AND EQUITY

Current Liabilities

Notes payable

$ 659,604Case C Northern Lights Communications

2

Current portion of other

notes payable

1,491,767

$3,320,197

Current portion of capital

lease obligations

1,094,381

668,826

Accounts payable

310,358

835,384

Accrued

telecommunications and

other expenses

2,971,935

3,036,633

Income taxes payable

256,140

475,945

Total current liabilities

$ 6,784,185

$ 8,336,985

Long-term liabilities:

Notes payable, less current

portion

$ 6,605,835

$10,030,963

Capital lease obligations

780,593

56,219

Deferred income tax liability

342,359

306,021

Total long-term liabilities

$ 7,728,787

$10,393,203

Preferred stock

$ 2,400,000

$ 2,400,000

Common stockholders

equity:

Common Stock

$ 1,438,903

$ 1,438,903

Additional paid-in capital

10,630

10,630

Retained earnings

3,031,714

3,366,096

Total ownership equity

$ 4,481,247

$ 4,815,629

TOTAL DEBT AND EQUITY

$21,394,219

$25,945,817Case C Northern Lights Communications

3

Income Statements for Northern Lights Communications, Inc.

2010

2011

Sales Revenue

Pay-phone coin calls

$14,036,665

$17,615,069

Automated operator, routed

calls

17,049,394

15,932,154

Other

505,581

1,363,738

Total revenues

$31,591,640

$34,910,951

Operating expenses:

Telephone charges

$ 7,851,842

$ 9,078,851

Commissions

4,909,445

5,627,288

Telecommunications fees

1,821,930

1,519,095

Depreciation and

amortization

4,298,090

5,353,797

Field operations personnel

2,016,935

2,988,456

Chargebacks and doubtful

accounts

1,104,896

1,111,857

General and administrative

expenses

5,520,405

6,435,919

Total operating expenses

$27,523,543

32,115,263

Operating income

$ 4,068,097

$2,795,688

Other income (expenses):

Interest expense

($1,631,416)

($1,816,222)

Interest income

57,278

5,069

Losses on affiliates

( 34,608)

( 108,556)

Unusual gains

1,160,238

27,234

Total other income

(expenses)

($ 448,508)

($ 1,892,475)

Income before taxes

$3,619,589

$ 903,213

Provision for income taxes

1,339,140

424,831

Net income

$2,220,449

$ 478,382Case C Northern Lights Communications

4

Questions

1.

Using financial ratios, compare the firms financial performance for 2010 and 2011.

2.

What do you think might have happened from 2010 to 2011?