Question

Please refer to the attached income statement and balance sheet for the Diamond Gem Cleaning and Maintenance Company.

BALANCE SHEET

ASSETS
CURRENT ASSETS
Cash		225,971
Contracts receivables		505,050
Other assets		162,847
Total current assets		893,868
LONG TERM ASSETS
Equipment		286,792
TOTAL ASSETS		1,180,660
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable		257,335
Line of credit		85,000
Accrued expenses		72,495
Income tax payable		46,660
Current portion of notes payable		31,747
Deferred income taxes		78,460
Total current liabilities		571,697
LONG TERM LIABILITIES
Notes payable (long term)		172,467
TOTAL LIABILITIES		744,164
STOCKHOLDERS' EQUITY
Common stock	62,000
Additional paid-in capital	63,862
Retained Earnings	310,634
Total stockholders' equity		436,496
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY		1,180,660
INCOME STATEMENT

Contract Revenues	5,146,862
Contract Costs	4,532,519
Gross Profit	614,343
General and Administrative Expenses	322,356
Operating Income	291,987
Other Expense	25,770
Income Before Provision for Income Taxes	266,217
Provision for Income Taxes	115,450
Net Income	150,767
Retained Earnings, Beginning Balance	159,867
Net Income	150,767
Retained Earnings, Ending Balance	310,634

Perform a financial ratio analysis of the company using the following ratios: (1) Gross profit margin, (2) Current ratio, and (3) Debt ratio. Provide a narrative about, and observations of, significant lines from the statements. Draw some conclusions based on your observations. Support your observations with research, data, and logic. Research should be from at least four sources outside textbook materials and should address financial ratio and trend analysis. Discuss what limitations exist with the informational material provided. What other material would be important to your trend analysis? Superior papers will do the following: • Provide a financial ratio analysis of the company using: (1) Gross profit margin, (2) Current ratio, and (3) Debt ratio. • Provide a narrative about, and observations of, significant lines from the financial statements. • Provide conclusions that are supported with research, data and logic. Provide a brief discussion of what limitations exist with the informational material provided.

Answer 1