2014 2015 Cash $ 9,000 $ 7,282 S-T invest. 48,600 20,000 AR 351,200 632,160 Inventories 715,200...

	2014	2015
Cash	$ 9,000	$ 7,282
S-T invest.	48,600	20,000
AR	351,200	632,160
Inventories	715,200	1,287,360
Total CA	1,124,000	1,946,802
Gross FA	491,000	1,202,950
Less: Depr.	146,200	263,160
Net FA	344,800	939,790
Total assets	$1,468,800	$2,886,592
	2014	2015
Accts. payable	$ 145,600	$ 324,000
Notes payable	200,000	720,000
Accruals	136,000	284,960
Total CL	481,600	1,328,960
Long-term debt	323,432	1,000,000
Common stock	460,000	460,000
Ret. earnings	203,768	97,632
Total equity	663,768	557,632
Total L&E	$1,468,800	$2,886,592

Analyze the balance sheet and explain what we can learn about the company from reading the

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Expert Solution

The ratios used to perform the analysis here are the current ratio , long term debt to assets ratio and the debt to equity ratio.The Current ratio is the current Assets of the firm divided by the current liabilities.In the year 2014 the current ratio of the firm is 1,124,000/481,600=2.4.But in the year 2015 it is $1,946,802/1,328,960=1.46.The current ratio remains above the figure that is deemed ideal which is above 1.2 .Now coming to the debt management aspect of the firm the the long term debt to asset ratio in 2014 is$323,432/1,468,800=.2202That means 22% of the total assets are financed by long term debt.In 2015 the Long term debt to total asset ratio =$1,000,000/$2,886,592=.35 The debt to equity ratio =Total Liabilities/Total Shareholder Equity.In 2014 the Total Liabilities =$1,468,800-$663,768=$805,032 So the Debt Equity Ratio =805,032/663,768=1.21.In 2015 the total liabilities =$2,886,592-$557,632=$2,328,960 So Debt Equity ratio =2,328,960/557,632=4.18.When analyzing the debt to equity ratio and the long term debt to assets ratio we can understand that both of them has witnessed an increase in the year 2015.This would imply that firm has financed more of it's operations by means of long term finance.In other words the firm might have expanded it's operations using debt financing.As a result of this the risk of bankruptcy is higher, this is because if the firm falls on harder times and the sales decline the firm will have a tough time meeting its interest payments .

jeff jeffy answered 1 year ago

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