Question

How would you interpret the below financials?

Income Statement - Quarter 3
Gross Revenue	3,182,084		100.0%
- Commissions	285,359		9.0%
- Refunds	187,743		5.9%
+ Interest Income	-		0.0%
Net Revenue		2,708,982	85.1%
Flight Operations	646,112		20.3%
Fuel	573,887		18.0%
Maintenance	565,530		17.8%
Passenger Service	443,330		13.9%
Cabin/Food Service	45,478		1.4%
Insurance	66,000		2.1%
Marketing Expenses	31,000		1.0%
Add. Employee Compensation	8,400		0.3%
Quality and Training	4,000		0.1%
Hiring/On-Job-Training Costs	18,000		0.6%
Social Performance Budget	500		0.0%
Market Research Cost	-		0.0%
Interest Expense	33,977		1.1%
Lease Payment	502,000		15.8%
Administrative Exp	200,000		6.3%
Depreciation	5,000		0.2%
Other Expense	6,771		0.2%
Total Operating Expense		3,149,985	99.0%
Operating Profit/Loss		(441,003)	-13.9%
Net Cargo Profit	3,820		0.1%
Other Income	-		0.0%
Profit Before Tax		(437,183)	-13.7%
Less Income Tax (40%)	-		0.0%
Net Profit		(437,183)	-13.7%
Dividends Paid		-	0.00/sh
Current QuarterYear To-Date
Balance Sheet - Quarter 3       Cash             243,678 Short-term Investment                        -      Accounts Receivable          1,272,834    Total Current Assets           1,516,512       Aircraft Cost                        -      Less Depreciation                        -      Net Aircraft                        -      Facilities/Equipment-Net               65,000    Total Fixed Assets                 65,000       Total Assets           1,581,512       Accounts Payable             943,496    Short-term Loans             937,268    Total Current Liabilities           1,880,764       Long-term Loans             260,439    Total Liabilities           2,141,203       Common Stock          1,525,000    Retained Earnings        (2,084,690)    Total Equity             (559,690)       Total Liabilities & Equity           1,581,513 Cash Flow - Quarter 3       Beginning Cash              219,281 CD Redemption                         -      Gross Revenue (60%)           1,909,250    Accounts Receivable           1,039,620    Stock Issued                         -      Loan Proceeds                         -      Other Income              469,820          Total Cash Inflow (a)           3,637,971       Commissions + Refunds              473,102    Operating Expense (70%)           2,201,489    Accounts Payable              714,385    Income Tax                         -      Total Loan Payments                  5,315    CD Purchase                         -      Dividends                         -      Equipment Purchases                         -            Total Cash Outflow (b)           3,394,291       Net Cash (a)-(b)               243,680 Overdraft Loan                         -         Ending Cash               243,680

Answer 1

Answer    Interpretations of Financial statements.

•             Company business operating ratio is( 1.16)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. Also company has low cash balance, this will create liquidity problem to company in near future.

•             Company debt equity ratio is very low (78%), 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 improves than previous quarter.