Vuestion. Ahmed enjoyed the bank training course, but it was good to be starting his first real job in the corporate lending proup. Earlier that morning the boss banded him a set of financial statements of Kansai Paints Co. "Kansai Paints" she said, "has a $1 million loan from a due at the cod of December, and it is likely to ask us to roll it over. The company seems to have run into some rough weather recently, and I have asked Khalid to go down there this themoon and see what is happening. It might do you good to go along with him. Before you go, take a look at these financial statements and see what you think the problems are Here's a chance for you to use some of that stuff they taught you in the training counte, Ahmed was familiar with Kansai Paint's story. Founded in 1990, it had rapidly built up a chain of outlet selling construction materials. However, last year a number of new store openings had pushed the company is loss Management had halted all new construction and put 15 of its existing outlets up for sale Almed decided to start with Kansai Paints company's comparative financial statements for the years ending December 31, 2012 and 2011. The market price of Kual's common stock was $25 on December 31,2012 and 530 on December 31, 2011 Kansai Paints Co Income Statement For the year ending December 31, 2012 2012 2011 Net Sales 5.000.000 3,200,000 Cost of goods sold 3.400.000 200.000 Gross Profit 1 600,000 1,120,000 Selling expenses 650/000 465.000 Administrative expenses 325.000 224,000 Total penting expenses 225.000 088.000 Income from operations 625,000 432.000 Other income 25,000 19,200 650,000 451,200 Interest expensie 105,000 66.000 Income before income tax 545,000 387200 Income tax expense 300.000 176000 245.000 Netlacone 211200 Page 2 of 5 581.100 211.200 Kansai Paints Co Surement of Retainel Faring For the year ending December 31, 2012 2012 Retained wings, January 1 721 Add: Netcase for year 245.000 Total 000 Deduct Dividende On preferred stock 40,000 On common stock 25.000 Total 85.000 Remings.com 88.000 400000 M.000 70,000 71.000 Kansai Paints Balance Short As on December 31, 2012 2011 Current Asset Call Short-term investment Accounts receive Inventories 175.000 150.000 125000 720,000 30.000 SO100 325.000 450.000 Other income Interest expense Income before income tax Income tax expense Net Income 25,000 650,000 105,000 545,000 300.000 245.000 WA 451,200 64,000 387,200 176.000 211,200 Page 2 of 5 Kansai Paints Co Statement of Retained amings For the year ending December 31, 2012 2012 Retained camins, January 1 723,000 Add: Net income for your 245.000 Total 968.000 Deduct Dividends On preferred stock 40.000 On common stock 45.000 Total 85.000 Retained earnings, December 31 883000 2011 381,100 211.200 793.000 40.000 30.000 70.000 723,000 2011 Kansai Paints Co. Balance Sheet As on December 31, 2012 2012 Current Assets Cash 175.000 Short-term investment 150,000 Accounts receivables 425.000 Inventories 720,000 Prepaid expenses 30,000 Total Current Assets 1,500,000 Long-term investment 250,000 Property, plant & equipment (et) 2.093,000 Total Assets 3,843,000 125.000 50,000 325.000 480.000 20.000 1,000,000 225.000 1.948.000 3.173.000 Current liabilities 750,000 650,000 Long-term liabilities Mortgage payable 410,000 Bonds payable N00.000 800,000 Total long-term liabilities 1.210.000 800.000 Total liabilities 1.960.000 1.450,000 Stockholder equity Preferred stock (5.00) 500.000 500,000 Common stock 10 500.000 500,000 Retained earnings 883.000 223.000 Total Stockholder equity 1.883.000 1.223.000 Total liabilities and stock holder equity 3.173.000 Required: a) Highlight the ratios which Ahmed should be to analyze company situation b) Using ratio analysis highlight the problem areas (if any) of Kansai Paints Co. c) Compare the ratio of two years to help decide that the loan should be extended or not. Page 305 Vuestion. Ahmed enjoyed the bank training course, but it was good to be starting his first real job in the corporate lending proup. Earlier that morning the boss banded him a set of financial statements of Kansai Paints Co. "Kansai Paints" she said, "has a $1 million loan from a due at the cod of December, and it is likely to ask us to roll it over. The company seems to have run into some rough weather recently, and I have asked Khalid to go down there this themoon and see what is happening. It might do you good to go along with him. Before you go, take a look at these financial statements and see what you think the problems are Here's a chance for you to use some of that stuff they taught you in the training counte, Ahmed was familiar with Kansai Paint's story. Founded in 1990, it had rapidly built up a chain of outlet selling construction materials. However, last year a number of new store openings had pushed the company is loss Management had halted all new construction and put 15 of its existing outlets up for sale Almed decided to start with Kansai Paints company's comparative financial statements for the years ending December 31, 2012 and 2011. The market price of Kual's common stock was $25 on December 31,2012 and 530 on December 31, 2011 Kansai Paints Co Income Statement For the year ending December 31, 2012 2012 2011 Net Sales 5.000.000 3,200,000 Cost of goods sold 3.400.000 200.000 Gross Profit 1 600,000 1,120,000 Selling expenses 650/000 465.000 Administrative expenses 325.000 224,000 Total penting expenses 225.000 088.000 Income from operations 625,000 432.000 Other income 25,000 19,200 650,000 451,200 Interest expensie 105,000 66.000 Income before income tax 545,000 387200 Income tax expense 300.000 176000 245.000 Netlacone 211200 Page 2 of 5 581.100 211.200 Kansai Paints Co Surement of Retainel Faring For the year ending December 31, 2012 2012 Retained wings, January 1 721 Add: Netcase for year 245.000 Total 000 Deduct Dividende On preferred stock 40,000 On common stock 25.000 Total 85.000 Remings.com 88.000 400000 M.000 70,000 71.000 Kansai Paints Balance Short As on December 31, 2012 2011 Current Asset Call Short-term investment Accounts receive Inventories 175.000 150.000 125000 720,000 30.000 SO100 325.000 450.000 Other income Interest expense Income before income tax Income tax expense Net Income 25,000 650,000 105,000 545,000 300.000 245.000 WA 451,200 64,000 387,200 176.000 211,200 Page 2 of 5 Kansai Paints Co Statement of Retained amings For the year ending December 31, 2012 2012 Retained camins, January 1 723,000 Add: Net income for your 245.000 Total 968.000 Deduct Dividends On preferred stock 40.000 On common stock 45.000 Total 85.000 Retained earnings, December 31 883000 2011 381,100 211.200 793.000 40.000 30.000 70.000 723,000 2011 Kansai Paints Co. Balance Sheet As on December 31, 2012 2012 Current Assets Cash 175.000 Short-term investment 150,000 Accounts receivables 425.000 Inventories 720,000 Prepaid expenses 30,000 Total Current Assets 1,500,000 Long-term investment 250,000 Property, plant & equipment (et) 2.093,000 Total Assets 3,843,000 125.000 50,000 325.000 480.000 20.000 1,000,000 225.000 1.948.000 3.173.000 Current liabilities 750,000 650,000 Long-term liabilities Mortgage payable 410,000 Bonds payable N00.000 800,000 Total long-term liabilities 1.210.000 800.000 Total liabilities 1.960.000 1.450,000 Stockholder equity Preferred stock (5.00) 500.000 500,000 Common stock 10 500.000 500,000 Retained earnings 883.000 223.000 Total Stockholder equity 1.883.000 1.223.000 Total liabilities and stock holder equity 3.173.000 Required: a) Highlight the ratios which Ahmed should be to analyze company situation b) Using ratio analysis highlight the problem areas (if any) of Kansai Paints Co. c) Compare the ratio of two years to help decide that the loan should be extended or not. 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