Financial Management
BWFF 2033
QUESTION 1
a)
Balance Sheet
General Aviation, Inc.
December 31, 2005
Assets
Cash $ 8 005
Marketable securities $ 16 200
Accounts receivable $ 62 000
Inventories $ 73 560
Total current assets $ 159 565
Gross fixed assets $ 146 662.76
Less: Accumulated depreciation $ 50 000
Net fixed assets $ 96 662.76
Total assets $ 256 227.76
Liabilities and Stockholders’ Equity
Accounts payable $ 28 800
Notes payable $ 20 300
Accruals $ 18 800
Total current liabilities $ 67900
Long-term debts $ 58 676.76
Total liabilities $ 126 576.76
Stockholders’ equity
Preferred stock $ 2 451
Common stock at par $ 30 000
Paid- in capital in excess of par $ 6 400
Retained earnings $ 90 800
Total stockholders ‘equity $ 129 651
Total liabilities and stockholders ‘equity $ 256 227.76
Gross profit margin = Gross profit
Sales
38.7 = Gross profit
720 000
Gross profit = $ 278 640
1
Financial Management
BWFF 2033
Gross profit = Sales – COGS
278 640 = 720 000 – COGS
COGS = $ 441 360
Inventory turnover = COGS
Inventory
6 = 441 360
Inventory
Inventory = $ 73 560
Average collection period = Account receivable
Sales / 360
31 = Account receivable
720 000 / 360
Account receivable = 62 000
Total asset = current asset + net fixed asset
256 227.76 = 159 565 + net fixed asset
Net fixed asset = $ 96 662.76
2
Financial Management
BWFF 2033
Total asset turnover = Sales
Total asset
2.81 = 720 000
Total asset
Total asset = $ 256 227.76
Current ratio = Current asset
Current liabilities
2.35 = 159 565
Current liabilities
Current liabilities = $ 67 900
Total asset = total liabilities + total equity
256 227.76 = total liabilities + 129 651
Total liabilities = $ 126 576.76
Total liabilities = current liabilities + long term debt
126 6.76 = 67 900 + long term debt
Long-term debt = $ 58 676.76
b) )List two potential difficulties with ratio analysis?
3
Financial Management
BWFF 2033
Current Ratio
Total Debt Ratio
