Question

How would you interpret the below financial statements?

Income Statement - Quarter 1
Gross Revenue	1,458,932		100.0%
- Commissions	128,612		8.8%
- Refunds	97,748		6.7%
+ Interest Income	-		0.0%
Net Revenue		1,232,572	84.5%
Flight Operations	299,590		20.5%
Fuel	257,205		17.6%
Maintenance	274,102		18.8%
Passenger Service	212,316		14.6%
Cabin/Food Service	17,776		1.2%
Insurance	17,640		1.2%
Marketing Expenses	30,000		2.1%
Add. Employee Compensation	-		0.0%
Quality and Training	1,000		0.1%
Hiring/On-Job-Training Costs	12,000		0.8%
Social Performance Budget	500		0.0%
Market Research Cost	-		0.0%
Interest Expense	34,219		2.3%
Lease Payment	132,000		9.0%
Administrative Exp	100,000		6.9%
Depreciation	19,000		1.3%
Other Expense	9,000		0.6%
Total Operating Expense		1,416,348	97.1%
Operating Profit/Loss		(183,776)	-12.6%
Net Cargo Profit	-		0.0%
Other Income	-		0.0%
Profit Before Tax		(183,776)	-12.6%
Less Income Tax (40%)	-		0.0%
Net Profit		(183,776)	-12.6%
Dividends Paid		-	0.00/sh
Current QuarterYear To-Date
Balance Sheet - Quarter 1       Cash             556,635 Short-term Investment                        -      Accounts Receivable             583,573    Total Current Assets           1,140,208       Aircraft Cost             800,000    Less Depreciation           (320,000)    Net Aircraft             480,000    Facilities/Equipment-Net               75,000    Total Fixed Assets               555,000       Total Assets           1,695,208       Accounts Payable             419,204    Short-term Loans             937,268    Total Current Liabilities           1,356,472       Long-term Loans             271,177    Total Liabilities           1,627,649       Common Stock          1,525,000    Retained Earnings        (1,457,440)    Total Equity                 67,560       Total Liabilities & Equity           1,695,209       Cash Flow - Quarter 1       Beginning Cash              735,596 CD Redemption                         -      Gross Revenue (60%)              875,359    Accounts Receivable              524,258    Stock Issued                         -      Loan Proceeds                         -      Other Income                         -            Total Cash Inflow (a)           2,135,213       Commissions + Refunds              226,360    Operating Expense (70%)              978,144    Accounts Payable              368,540    Income Tax                         -      Total Loan Payments                  5,534    CD Purchase                         -      Dividends                         -      Equipment Purchases                         -            Total Cash Outflow (b)           1,578,578       Net Cash (a)-(b)               556,635 Overdraft Loan                         -         Ending Cash               556,635

Answer 1

•             Company business operating ratio is( 97%)is very high because company operating   expenses are too high, this is reason company getting net operating loss from business from current quarter as well a large amount of accumulated loss in balance sheet.

•             Due to loss there is no tax liability due on company this quarter.

•             Due to current quarter and accumulated loss, company also not declare and paid any dividend.

•             There are big amount outstanding of company debtors and accounts receivable. This will create liquidity problem to company in near future.

•             Company debt equity ratio is very low (79%), which show high cost of capital of equity capital.   But company’s getting loss continuously and will not able to fixed interest and other expenses on his debt, so company debt- equity ratio is ok.

•             Company has a big amount of outstanding short term loans which require to pay within a year, but company liquid assets is not enough to pay his loans and other liabilities. So company will face liquidity problem in very near future.

•             Cash flow of company are also not satisfactory, in this cash flow a big amount of refund include which will never happened frequently in future.