Question

In: Finance

Given the following information please construct a balance sheet and an income statement for the company....

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?

Solutions

Expert Solution

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.


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