Question

The following is extracted information from financial statements of Kabuku Ltd for the years 2005 to 2009

Balance Sheet as at year end 31^st Dec

	2005	2006	2007	2008	2009
CAPITAL AND
LIABILITIES:
Equity share capital	400,000	600,000	500,000	400,000	600,000
Long term loan	500,000	250,000	300,000	400,000	300,000
Sundry creditors	200,000	300,000	350,000	340,000	250,000
Short term loan	50,000	40,000	60,000	115,000	50,000
ASSETS:
Land and Building	300,000	500,000	600,000	700,000	450,000
Furniture	600,000	450,000	400,000	400,000	500,000
Cash at bank	50,000	60,000	70,000	50,000	70,000
Stock	140,000	150,000	100,000	80,000	120,000
Prepaid expenses	60,000	30,000	40,000	25,000	60,000

You are required to carry out the following analyses;

Common size balance sheet for the five years. and interpret.

Answer 1

Common size balance sheet for the year 2005 to 2009
	2005	2006	2007	2008	2009
Capital and liabilities		%		%		%		%		%
Equity share capital	400000	35%	600000	50%	500000	41%	400000	32%	600000	50%
Long term loan	500000	43%	250000	21%	300000	25%	400000	32%	300000	25%
Sundry creditors	200000	17%	300000	25%	350000	29%	340000	27%	250000	21%
Short term loan	50000	4%	40000	3%	60000	5%	115000	9%	50000	4%
Total capital and liabilities	1150000	100%	1190000	100%	1210000	100%	1255000	100%	1200000	100%
Assets
Land/Building	300000	26%	500000	42%	600000	50%	700000	56%	700000	52%
Furniture	600000	52%	450000	38%	400000	33%	400000	32%	400000	30%
Cash and bank	50000	4%	60000	5%	70000	6%	50000	4%	70000	5%
Stock	140000	12%	150000	13%	100000	8%	80000	6%	120000	9%
Prepaid expenses	60000	5%	30000	3%	40000	3%	25000	2%	60000	4%
Total assets	1150000	100%	1190000	100%	1210000	100%	1255000	100%	1350000	100%
Interpretation:-
i) The balance of trade payables is increasing indicating the company is facing difficulty in paying off its payables on time
ii) The company is majorly finnaced through outside funds indicating it may face issue in paying off its debts if the profitability declines
iii) The balance of stock as a percent of total assets is decreasing indicating the company is able to liquidate its stock easily and convert the same into cash