ASSETS 2013 2014 % 2015 %

(Base Year)
Cash 100,000 120,000 20% 130,000 30%
Receivable 120,000 140,000 17% 80,000 -33%
Trading Securities 50,000 50,000 0% 80,000 60%
Inventories 170,000 180,000 6% 160,000 -6%
Other Current Assets 25,000 20,000 20% 20,000 -20%
Total Current Asset 465,000 510,000 10% 470,000 1%
Property, Plant & 300,000 310,000 7% 400,000 33%
equipment
Total Asset 765,000 830,000 8% 870,000 14%
Liability & Equity
Accounts Payable 220,000 240,000 9% 200,000 9%
Accrued Expense 120,000 70,000 -25% 120,000 0%
Total Current Liability 340,000 310,000 9% 320,000 6%
Non-Current Liability 100,000 100,000 0% 150,000 50%
Total Liability 440,000 410,000 7% 470,000 7%
Shareholder Equity 325,000 420,000 29% 400,000 23%
Total Liability &Equity 765,000 830,000 8% 870,000 14%

PROBLEM 3

A. Perform a horizontal analysis using 2013 as the base year for the analysis.

Current Year−Base Year

x 100
Base Year

2013 2014 % 2015 %

Sales 1,200,000 1,440,000 20% 1,584,000 32%
Cost of Sale 800,000 1,040,000 30% 1,144,000 43%
Gross Profit 400,000 400,000 0% 440,000 10%
Operating Expense 150,000 120,000 -20% 140,000 -7%
Operating Income 250,000 280,000 12% 300,000 20%
Interest Expense 12,000 12,000 0% 18,000 50%
Income before Taxes 238,000 268,000 13% 282,000 18%
Tax(30%) 71,400 80,400 13% 84,600 18%
Net Income 166,600 187,600 13% 197,400 18%

ASSETS 2013 2014 % 2015 %

%
(Base Year)
Cash 100,000 13% 120,000 14% 130,000 15%
Receivable 120,000 16% 140,000 17% 80,000 9%
Trading Securities 50,000 7% 50,000 6% 80,000 9%
Inventories 170,000 22% 180,000 22% 160,000 18%
Other Current Assets 25,000 3% 20,000 2% 20,000 2%
Total Current Asset 465,000 510,000 470,000
Property, Plant & 300,000 310,000 400,000
39% 37% 46%
equipment
Total Asset 765,000 100% 830,000 100% 870,000 100%
Liability & Equity
Accounts Payable 220,000 29% 240,000 29% 200,000 23%
Accrued Expense 120,000 16% 70,000 8% 120,000 14%
Total Current Liability 340,000 310,000 320,000
Non-Current Liability 100,000 13% 100,000 12% 150,000 17%
Total Liability 440,000 410,000 470,000
Shareholder Equity 325,000 42% 420,000 51% 400,000 46%
Total Liability &Equity 765,000 100% 830,000 100% 870,000 100%

B. Construct the company’s common size financial statements.

2013 2014 % 2015 %

Sales 1,200,000 100% 1,440,000 100% 1,584,000 100%
Cost of Sale 800,000 67% 1,040,000 72% 1,144,000 72%
Gross Profit 400,000 400,000 440,000
Operating Expense 150,000 13% 120,000 8% 140,000 9%
Operating Income 250,000 280,000 300,000
Interest Expense 12,000 1% 12,000 1% 18,000 1%
Income before Taxes 238,000 268,000 282,000
Tax(30%) 71,400 6% 80,400 6% 84,600 5%
Net Income 166,600 14% 187,600 13% 197,400 12%

C . Perform ratio analysis to evaluate the company’s risks and profitability

Short Term Risk

2013 2014 2015

465,000 510,000 470 , 000

CR= CR= CR=
Current Ratio = TCA/TCL 340,000 310 , 000 32 0,000
¿1.37 ¿1. 65 ¿1. 4 7

465 K −170 K 510 K −18 0 K 470 K −16 0 K

TCA−INV Q R= ¿ QR=
Quick Ratio= 340,000 31 0,000 320,000
TCL
¿ 0.87 ¿ 1.06 ¿ 0. 97

Long Term Risk 2013 2014 2015

440,000 41 0,000 47 0,000

Debt Ratio= Total DR= D R= D R=
765,000 830 , 000 870 , 000
Liabilities/Total Assets
¿ 0.58 ¿ 0. 49 ¿ 0. 54

440,000 410,000 470 ,000

Equity Ratio=Total E R= ER= ER=
32 5,000 420 ,000 400 ,000
liability/Total Equity
¿1.35 ¿ 0.98 ¿ 1.18

Profitability 2013 2014 2015

166,600 187,600 197,400
Net income ROA= ROA= ROA=
ROA= 765,000 830 , 000 870 , 000
Ave .Total Asset
¿ 0.22 ¿ 0. 23 ¿ 0. 23
166,600 187 ,600 197,4 00
Net income ROE= ROE= ROE=
ROE= 32 5,000 420 , 000 400 , 000
Shareholders ' equity
¿ 0. 51 ¿ 0. 45 ¿ 0 .49