ANALYSIS Financial – Carlos Santana

ANALYSIS financialCarlos Santana is the accountant and Manager of intrudes distributor companies. He hires you as a consultant and financial analyst in the loan application. The company is requesting a loan of five years in a known Community Bank. The purpose of the loan is to cancel the promissory note-“notes payable” 2012 and to finance current assets, especially inventory of merchandise. He then presented the following financial statements.INCOME STATEMENTS: 2012 2011SALES $16,665,000 $ 15,053,750COST OF GOODS SOLD 9,270,000 7,987,000 GROSS PROFIT $ 7,395,000 $ 7,066,750OPERATING EXPENSES:FIXED CASH OPERATING EXPENSES $ 1,925,000 $ 1,725,000VARIABLE OPERATING EXPENSES 1,840,000 1,788,000DEPRECIATION 480,000 380,000 TOTAL OPERATING EXPENSES $ 4,245,000 $ 3,893,000EARNINGS BEFORE INTEREST & TAXES $ 3,150,000 $ 3,173,750INTEREST 1,332,500 1,315,000EARNINGS BEFORE TAXES $ 1,817,500 $ 1,858,750TAXES 727,000 743,500 NET INCOME $ 1,090,500 $ 1,115,250LESS PREFERRED STOCKS DIVIDENDS 247,500 278,125EARNINGS AVAILABLE FOR COMMON STOCKHOLDER $ 843,000 $ 837,125========== ==========BALANCE SHEETS:ASSETS 2012 2011CASH $ 512,500 $ 410,250ACCOUNTS RECEIVABLE 2,313,890 2,209,750MARKETABLE SECURITIES 762,500 800,000INVENTORIES 1,989,062 1,958,612TOTAL CURRENT ASSETS $ 5,577,952 $ 5,378,612LAND $ 6,934,547 $ 6,729,267BUILDING & EQUIPMENT 3,500,000 3,500,000LESS: ALLOWANCE FOR DEPRECIATION 1,250,000 1,150,000TOTAL FIXED ASSETS (NET) $ 9,184,547 $ 9,079,267TOTAL ASSETS $14,762,499 $14,457,879======== =========LIABILITIESACCOUNTS PAYABLE $ 2,875,000 $ 2,621,250NOTES PAYABLE 1,427,500 1,275,000MORTGAGE – CURRENT PORTION 187,500 252,255TOTAL CURRENT LIABILITIES $ 4,490,000 $ 4,148,505MORTGAGE DEBT- LONG TERM $ 3,913,125 $ 4,793,000TOTAL LIABILITIES $ 8,403,125 $ 8,941,505STOCKHOLDERS’ EQUITYCOMMON STOCKS $ 2,100,000 $2,100,000PAID IN CAPITAL 966,374 966,374RETAINED EARNINGS 3,293,000 2,450,000 TOTAL STOCKHOLDERS’ EQUITY $ 6,359,374 $ 5,516,374TOTAL LIAB. & STOCKHOLDERS’ EQUITY $ 14,762,499 $ 14,457,879=========== ===========INDUSTRIES RATIOS: INDUSTRIES AVERAGECURRENT RATIO 1.50ACID TEST RATIO 1.20AVERAGE COLLECTION PERIOD 30 DAYSINVENTORY TURN/OVER 10.20 TIMESDEBTS TO TOTAL ASSETS 24.50%LONG TERM DEBTS TO TOTAL CAPITALIZATION 33%TIMES INTEREST EARNED 2.50 TIMEGROSS PROFIT MARGIN 26%OPERATING PROFIT MARGIN 17%NET PROFIT MARGIN 7.50%TOTAL ASSETS TURN/OVER 2.14 TIMESFIXED ASSETS TURN/OVER 1.40 TIMESOPERATING EARNINGS RETURN ON INVESTMENT 11.4%RETURN ON TOTAL ASSETS 4.00%RETURN ON COMMON EQUITY 9.50%Required:1. RATIO ANALYSIS: EXCELLENCE, GOOD, AVERAGE, POOR, and DEFICIENT (personal appraisal)2. COMMON SIZE ANALYSISA. INCOME STATEMENTSB. BALANCE SHEETS3. FUND STATEMENT ANALYSIS4. ANALYZE THE LOAN REQUEST. WOULD YOU GRANT THE LOAN? EXPLAIN.