Assignment 2 Questions
Problem 6.7 Common Size Financial Statements
The balance sheet and income statement for Webb Enterprises Inc. are found below:
|
Balance Sheet |
2010 |
|
Cash and Marketable Securities |
$500 |
|
Accounts receivable |
$6,000 |
|
Inventories |
$9,500 |
|
Current assets |
$16,000 |
|
Net property plant & equipment |
$17,000 |
|
Total |
$33,000 |
|
|
|
|
Accounts payable |
$7,200 |
|
Short –term debt |
$6,800 |
|
Current liabilities |
$14,000 |
|
Long-term Debt |
$7,000 |
|
Total liabilities |
$21,000 |
|
Total owner’s equity |
$12,000 |
|
Total liabilities and owners’ equity |
$31,000 |
|
Income Statement |
2010 |
|
Revenues |
$30,000 |
|
Cost of goods sold |
($20,000) |
|
Gross profit |
$10,000 |
|
Operating expenses |
($8,000) |
|
Net operating expenses |
$2,000 |
|
Interest expense |
($900) |
|
Earnings before taxes |
$1,100 |
|
Taxes |
($400) |
|
Net Income |
$700 |
A .Prepare a common size balance sheet for Webb Ent
B. Prepare a common size income statement for Webb Ent
C. Use your common size financial statements to respond to your boss’ request that you write up your assessment of the firm’s financial condition. Specifically, write up a brief narrative that responds to the following questions:
a. How much cash does Webb have on hand relative to its total assets?
b. What proportion of Webb’s assets has the firm financed using short term debt?
c. What percent of Webb’s revenues does the firm have left over after paying all of its expenses (including taxes)?
d. Describe the relative importance of Webb’s major expense categories, including cost of goods sold, operating expenses, and interest expenses.
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