Interpreting Financial Statements: Ratio Analysis
Comparative balance sheets for Creative Cabinetry, Inc. are shown below:
|
Assets |
12 31 01 |
12 31 00 |
|
Cash |
$ 95,000 |
$ 33,000 |
|
Accounts receivable |
23,160 |
22,500 |
|
Inventory |
30,000 |
123,650 |
|
Prepaid rent |
3,840 |
5,850 |
|
Total current assets |
152,000 |
185,000 |
|
Land |
83,000 |
72,000 |
|
Equipment |
800,000 |
600,000 |
|
Accumulated depreciation |
(140,000) |
(90,000) |
|
Total long term assets |
743,000 |
582,000 |
|
Total assets |
$895,000 |
$767,000 |
|
Liabilities and Shareholders’ Equity |
||
|
Current Liabilities |
||
|
Accounts payable |
$ 83,300 |
$ 48,100 |
|
Accrued liabilities |
23,500 |
24,200 |
|
Short term notes payable |
62,000 |
51,000 |
|
Total current liabilities |
168,800 |
123,300 |
|
Mortgage payable |
547,200 |
383,500 |
|
Shareholders’ Equity |
||
|
Common stock |
150,000 |
150,000 |
|
Retained earnings |
29,000 |
110,200 |
|
Total shareholders’ equity |
179,000 |
260,200 |
|
Total liabilities and shareholders’ |
||
|
equity |
$895,000 |
$767,000 |
Required
a. Conduct a vertical analysis (common size) of Creative Cabinetry’s balance sheets for each year.
b. Calculate the liquidity ratios for each year.
c. Calculate asset management and debt management ratios for each year.
d. What conclusions can be drawn about Creative Cabinetry’s financial management?