Financial Statement Analysis

Financial Statement Analysis provides information that indicates how a company is performing.  By comparing financial statements of different years, a manager can make informed decisions about investments, expenditures, and activities that impact revenues.

Directions: Read the chapter in the text titled “Financial Statement Analysis.” Using the comparative financial statements for Baby Cakes International Inc. (see “BabyCakes_Financial_Project_Data.xls” linked in the lesson activities) , complete the following tasks.

Note: The market price of BabyCakes Int’l, Inc. common stock was $20 on December 31, 2008.

Part A:         

Complete the 19 ratios listed below.

Determine the following measures for 2008:

1.    Working Capital

2.    Current ratio

3.    Quick ratio

4.    Accounts receivable turnover

5.    Number of days’ sales in receivables

6.    Inventory turnover

7.    Number of days’ sales in inventory

8.    Ratio of fixed assets to long-term liabilities

9.    Ratio of liabilities to stockholders’ equity

10. Number of times interest charges earned

11. Number of times preferred dividends earned

12. Ratio of net sales to assets

13. Rate earned on total assets

14. Rate earned on stockholders’ equity

15. Rate earned on common stockholder’s equity

16. Earnings per share on common stock

17. Price-earnings ratio

18. Dividends per share of common stock

19. Dividend yield

 

Part B:         Explain what the results of each ratio indicate about the company.

 

Part C:         Complete a horizontal analysis for the Income Statement, and explain                            your findings.

 

Part D:         Complete a vertical analysis for the Income Statement, and explain your                                    findings.

Statement of

Retained Earnings

Statement of Retained Earnings

and

7,000 7,000

$375,000

																																																			Baby Cakes International Inc
for the Years ended	December 31,	2008	2007
December 31, 2008		December 31, 2007
Retained Earnings, January 1		$	375,000	$32		7,000
Net income for year	68,000	67,000
Total	$44	3,000	$394,000
Dividends Paid
Preferred Stock	$	15,000	$1	2,000
Common Stock
Total Dividends Paid	$22,000	$19,000
Retained Earnings December 31	$42		1,000

Income Statement

Baby Cakes International Inc

Income Statement
2008 2007

1,000 3,000

1,000

2,000

15,000

30,000

for the Years ended	December 31, 2008 and 2007
Sales	$1,055,000	$966,000
Sales returns
Sales Allowances	1,500
Sales Discounts	2,500
Net Sales	$1,050,000	$960,000
Cost of Goods Sold		400,000	390,000
Gross Profit		$650,000	$570,000
Selling Expenses	$270,000	$275,000
Administrative Expenses	195,000		165,000
Total operating expenses	$465,000	$440,000
Income from Operations	$185,000	$1	30,000
Other income	20,000
$205,000	$145,000
Other expense	96,000	48,000
Income before Tax	$109,000	$97,000
Income Tax Expense	41,000
NET INCOME	$68,000	$67,000

Balance Sheet

Baby Cakes International Inc

Balance Sheet
December 31, 2008 and 2007

December 31, 2008 December 31, 2007

165,000

300,000

400,000

$650,000

$250,000

350,000

Retained Earnings

375,000

$2,211,000 $1,575,000

ASSETS
Current Assets
Cash	$165,000	$126,000
Securities	398,000	254,000
A/R	199,000
Inventory	84,000	52,000
Prepaids	25,000	18,000
Total Current Assets	$871,000	$615,000
Long Term Investments		300,000	200,000
Plant Property and Equipment (net of depreciation)	1,040,000	760,000
Total Assets		$2,211,000		$1,575,000
LIABILITIES
Accounts Payable	$290,000		$250,000
Long Term Liabilities
Mortgage note payable , 8% due 2011
Bonds Payable, 12% due 2015	600,000
Total Long-term liabilities	$900,000	$400,000
Total Liabilities	$1,190,000
Stockholders’ Equity
Preferred $6 stock, $100 par	$200,000
Common Stock, $10 par		350,000
421,000
Total Stockholder’s Equity	$1,021,000	$925,000
Total liabilities and stockholders’ equity