Question

How would you interpret the below financials?

Income Statement - Quarter 4
Gross Revenue	3,149,864		100.0%
- Commissions	282,397		9.0%
- Refunds	239,389		7.6%
+ Interest Income	-		0.0%
Net Revenue		2,628,078	83.4%
Flight Operations	641,849		20.4%
Fuel	593,729		18.8%
Maintenance	561,836		17.8%
Passenger Service	430,489		13.7%
Cabin/Food Service	38,562		1.2%
Insurance	66,000		2.1%
Marketing Expenses	31,000		1.0%
Add. Employee Compensation	-		0.0%
Quality and Training	4,000		0.1%
Hiring/On-Job-Training Costs	18,000		0.6%
Social Performance Budget	-		0.0%
Market Research Cost	-		0.0%
Interest Expense	33,860		1.1%
Lease Payment	502,000		15.9%
Administrative Exp	200,000		6.3%
Depreciation	5,000		0.2%
Other Expense	-		0.0%
Total Operating Expense		3,126,324	99.3%
Operating Profit/Loss		(498,246)	-15.8%
Net Cargo Profit	6,522		0.2%
Other Income	-		0.0%
Profit Before Tax		(491,724)	-15.6%
Less Income Tax (40%)	-		0.0%
Net Profit		(491,724)	-15.6%
Dividends Paid		-	0.00/sh
Current QuarterYear To-Date
Balance Sheet - Quarter 4       Cash                        -                          -   Short-term Investment                        -      Accounts Receivable          1,259,946    Total Current Assets             1,259,946       Aircraft Cost                        -      Less Depreciation                        -      Net Aircraft                        -      Facilities/Equipment-Net               60,000    Total Fixed Assets                  60,000       Total Assets             1,319,946       Accounts Payable             936,397    Short-term Loans          1,179,733    Total Current Liabilities             2,116,130       Long-term Loans             255,231    Total Liabilities             2,371,361       Common Stock          1,525,000    Retained Earnings        (2,576,410)    Total Equity           (1,051,410)       Total Liabilities & Equity             1,319,951 Cash Flow - Quarter 4 Beginning Cash            243,678 CD Redemption                      -   Gross Revenue (60%)        1,889,918 Accounts Receivable        1,272,830 Stock Issued                      -   Loan Proceeds                      -   Other Income                6,522 Total Cash Inflow (a)        3,412,948 Commissions + Refunds            521,786 Operating Expense (70%)        2,184,927 Accounts Payable            943,496 Income Tax                      -   Total Loan Payments                5,208 CD Purchase                      -   Dividends                      -   Equipment Purchases                      -   Total Cash Outflow (b)        3,655,417 Net Cash (a)-(b)          (242,469) Overdraft Loan            242,465 Ending Cash                      (4)

Answer 1

Answer    Interpretations of Financial statements.

•             Company business operating ratio is( 1.19)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 no cash and bank balance, this will create liquidity problem to company in near future.

•             Company debt equity ratio is very low (94%), 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 is negative which show company written checks in excess of cash balance, Company finical position is very poor.