In: Finance
Given the following information please construct a balance sheet and an income statement for the company. It provides software via a cloud subscription. There is no inventory.
All information in $000
Total Revenues 5,374
Cash 908
Common Stock 651
Cost of Revenues Subscription 925
Interest Expense 16
Additional Paid in Capital 3,954
Retained Earnings (630)
Cost of Revenues Professional Services 365
Gross Margin 4,084
Short term securities 87
Long term debt 2,328
Accounts Receivable 1,906
Accounts Payable 1,103
Research & Development 793
Marketing & Sales 2,757
Other current liabilities 3,287
Other current assets 649
Investment income 10
General & Administrative Expense 680
Depreciation 448
Property & Equipment 1,126
Goodwill 3,783
Other long term assets 2,234
Total Current Assets 3,550
Total Operating Income (146)
Net Loss (600)
Total assets 10,693
1-What is the gross margin as a % of sales? Why is this important to the entrepreneur and the investor?
2-What is the EBITDA? Why is this important?
3-What is the interest coverage ratio? (EBITDA / Interest expense) Why is this important?
4-What is the current ratio? (Current assets / current liabilities) Why is this important to the investor and the entrepreneur?
1.
gross margin as a % of sales = Gross Margin / Total Revenue
= $4,084 / 5,374
= 76%
gross margin as a % of sales is 76%. Gross margin states proprtion of total revenue after deduction of direct cost. A 76% of gross margin as a % of sales means 24% of total revenue is direct cost.
2.
EBITDA = Net Operating Income+ Depreciation
= -$146 + $448
= $302
EBITDA is $302.
EBITDA states totaloperating cash flow after deduction of all direct and indirect expenses. EBITDA is use for valuation of company.
c.
Interest coverage ratio = EBITDA / Interest Expense
= $302 / $16
= 18.875
Interest coverage ratio is 18.875. Interest coverage ratio states comapny ability to pays its interest obligation.
d.
Current ratio = Current Assets / Current liabilities
= $3,550 / $3,287
= 1.08
Current Ratio of company is 1.08.
Current ratio is use by internal user that is management of company to manage its short term obligation and arrange cash for day to day operation. Also current ratio is use by external user that is supplier of raw materials to check the level of cash or short term assets with company for the payment of raw material.