Interpreting Financial Statements
SILLA, Inc., is a producer and supplier of natural gas and petroleum based products.
Its condensed statements of operations for the first quarters of 1998 and 1999 are shown below (dollars in thousands):
|
1999 |
1998 |
|
|
Revenues: |
$63,405 |
$59,088 |
|
Natural gas, oil, and other liquids |
1,065 |
176 |
|
Other |
64,470 |
59,264 |
|
Costs and expenses: |
||
|
Operating, exploration, and taxes |
19,099 |
18,844 |
|
General and administrative |
5,780 |
5,819 |
|
Depreciation, etc. |
29,450 |
25,650 |
|
54,329 |
50,313 |
|
|
Operating income |
$10,141 |
$ 8,951 |
Required
a. Based on this (partial) income statement, evaluate SILLA’s first quarter performance for 1999. To accomplish this objective, conduct horizontal and vertical analyses.
b. What other information would help you evaluate SILLA’s profitability?
c. Now consider the remainder of SILLA’s income statement as follows:
|
1999 |
1998 |
|
|
Operating income |
$ 10,141 |
$ 8,951 |
|
Interest expense, net of interest income |
(32,259) |
(32,575) |
|
Securities gains |
5,509 |
3,280 |
|
Other |
(370) |
(1,851) |
|
Net loss |
$ (16,979) |
$ (22,195) |
|
Average total assets |
$542,500 |
$553,000 |
|
Average total stockholders’ equity |
105,345 |
106,950 |
|
Interest expense, net of tax |
42,400 |
43,200 |
Complete Silla’s income statement (see part a) and evaluate SILLA’s first quarter performance for 1999.
d. To better understand Silla’s performance, calculate the return on assets and return on equity for both periods.
e. How has this new information changed the evaluation of SILLA’s performance? What issues will most concern SILLA’s board of directors? Why? What suggestions could be made to SILLA’s Board?