Question

Silver Cloud Computing is a company that provides cloud computing services. The company commenced operations on March 1, 2016. It acquired financing from the issuance of common stock for $40,000,000 and issuance of 4% bonds that mature in 2026 for $30,000,000. The income statements and balance sheets for the first two years are provided in a separate Excel spreadsheet. All amounts are in thousands.

           

Required:

The Chief Executive Officer (CEO) is interested in increasing sales and decreasing expenses. You have been requested to prepare a report that provides analysis of the financial statements and recommendations to improve the financial performance of the company. Your report should include the following items:

Calculate the following ratios and provide an analysis of the company based on the ratios: (Show Work)

Return on Equity=

PPE Turnover=

Total Liabilities to Equity=

Times Interest Earned=

SILVER CLOUD COMPUTING
Income Statements
For the Years Ended February 28, 2018 and 2017
		fye 2/28/2018		fye 2/28/2017
		(in thousands)		(in thousands)
Sales		$225,000		$200,000
Sales Discounts		3,375		2,500
Net Sales		221,625		197,500
Wages and Salaries		73,500		70,000
Bad Debt Expense		2,100		2,000
Depreciation		20,000		20,000
Marketing Expense		33,750		30,000
Occupancy Expense		54,000		54,000
Research & Development		22,500		20,000
Total Expenses		205,850		196,000
Income from Operations		15,775		1,500
Interest Expense		1,200		1,200
Income Before Taxes		14,575		300
Income Taxes (40%)		5,830		120
Net Income		$8,745		$180

SILVER CLOUD COMPUTING
Balance Sheets
February 28, 2018 and 2017 and February 29, 2016
							At Inception
			Feb 28 2018		Feb 28 2017		Feb 29 2016
			(in thousands)		(in thousands)		(in thousands)
Cash			$55,755		$22,300.00		$10,000
Accounts Receivable			18,000		16,000		-
Net Computer Equipment			20,000		40,000		60,000
Total Assets			$93,755		$78,300		$70,000
Accounts Payable			$9,000		$8,000		$-
Taxes Payable			5,830		120		-
Long-term Debt			30,000		30,000		30,000
Common Stock			40,000		40,000		40,000
Retained Earnings			8,925		180		-
Total Liabilities & Stockholders Equity			$93,755		$78,300		$70,000

Answer 1

Ratio Analysis		2018		2017
return on equity	net income/average total equity	19.63%		0.45%
net income		8745		180
average total equity	(48925+40180)/2	44552.5	(40000+40180)/2	40090
PPE turnover ratio	sales/average total assets	7.3875		3.95
sales		221625		197500
average total assets	(20000+40000)/2	30000	(60000+40000)/2	50000
total liability to equity	total liability/total equity	0.9163		0.948731
total liability	9000+5830+30000	44830	30000+8000+120	38120
total equity	40000+8925	48925	40000+180	40180
times interest earned	EBIT/interest	13.14583		1.25
EBIT		15775		1500
Interest		1200		1200
Company performanc is increasing in terms of profitability, turnover, solvency as its return on equity ratio, PPE turnover and total liability ratio is improving over the period. It times interest ratio is has also increased upto 13.14 times of interest payment