PK, started a business in the mid-1990s. Operations started slowly and losses were incurred in the first five years, but a profit was realized in 2000. Selected financial statements for 1999 and 2000 are shown in Exhibits 1 and 2. Exhibit 1 STATEMENT OF EARNINGS For the year ending December 31, 2000 Net Sales $ 4,516,000 Cost of Goods Sold 3,368,000 Gross Profit $ 1,148,000 Operating Expenses Selling & Administration 737,000 Depreciation 93,000 Interest 215,000 $ 1,045,000 Net Income $ 103,000 Exhibit 2 STATEMENT OF FINANCIAL POSITION For the years ending December 31 2000 1999 Assets Current Assets: Cash $ 60,000 30,000 Accounts Receivable 1,125,000 925,000 Inventory 995,000 885,000 Prepaid Expenses 20,000 25,000 Total Current Assets $ 2,200,000 1,865,000 Fixed Asset Land $ 245,000 245,000 Buildings & Equipment $ 1,215,000 1,105,000 Less: Accumulated Depreciation 313,000 902,000 220,000 885,000 Total Fixed Assets $ 1,147,000 1,130,000 Total Assets $ 3,347,000 2,995,000 Liabilities & Shareholders' Equity Current Liabilities: Bank Indebtedness $ 499,000 365,000 Accounts Payable 615,000 485,000 Total Current Liabilities $ 1,114,000 850,000 Long-term Debt 1,400,000 1,450,000 Total Liabilities $ 2,514,000 2,300,000 Shareholders' Equity: Common Shares 800,000 715,000 Retained Earnings 33,000 (20,000) Total Shareholders' Equity $ 833,000 695,000 Total Liabilities & Shareholders' Equity $ 3,347,000 2,995,000 Questions: 1. Please analyses the company on the basis of liquidity and profitability (Note: Please use the balance sheet and cash flow data of the case) 2. Please comment on the efficiency factor (capital rotation factor) of the business. 3. The following cash flow statement (for the year ending December 31, 2000) is prepared based on the P&L and Balance Sheet data of the case. Please read the cash flow very carefully and comment on the errors. Cash flow statement For the year ending December 31, 2000 OPERATIONS: Net Income $ 103,000 Add: Amortization 93,000 $ 196,000 Accounts Receivable $(200,000) Inventory (110,000) Prepaids 5,000 Accounts Payable 130,000 $ (175,000) Net Cash Flow from Operations $ 21,000 FINANCING ACTIVITIES: Bank Indebtedness $ 134,000 Long-term Debt (50,000) Share 85,000 Dividends (50,000) Net Cash Flow from Financing $ 119,000 INVESTING ACTIVITIES: Fixed Asset Purchases $(110,000) Net Cash Flow $ 30,000 Cash, January 1, 2000 30,000 Cash, December 31, 2000 $ 60,000
PK, started a business in the mid-1990s. Operations started slowly and losses were incurred in the first five years, but a profit was realized in 2000. Selected financial statements for 1999 and 2000 are shown in Exhibits 1 and 2.
Exhibit 1
STATEMENT OF EARNINGS
For the year ending December 31, 2000
Net Sales $ 4,516,000
Cost of Goods Sold 3,368,000
Gross Profit $ 1,148,000
Operating Expenses
Selling & Administration 737,000
Interest 215,000
$ 1,045,000
Net Income $ 103,000
Exhibit 2
For the years ending December 31
2000 1999
Assets
Current Assets:
Cash $ 60,000 30,000
Accounts Receivable 1,125,000 925,000
Inventory 995,000 885,000
Prepaid Expenses 20,000 25,000
Total Current Assets $ 2,200,000 1,865,000
Fixed Asset
Land $ 245,000 245,000
Buildings & Equipment $ 1,215,000 1,105,000
Less:
Total Fixed Assets $ 1,147,000 1,130,000
Total Assets $ 3,347,000 2,995,000
Liabilities & Shareholders' Equity
Current Liabilities:
Bank Indebtedness $ 499,000 365,000
Accounts Payable 615,000 485,000
Total Current Liabilities $ 1,114,000 850,000
Long-term Debt 1,400,000 1,450,000
Total Liabilities $ 2,514,000 2,300,000
Shareholders' Equity:
Common Shares 800,000 715,000
Total Shareholders' Equity $ 833,000 695,000
Total Liabilities & Shareholders' Equity $ 3,347,000 2,995,000
Questions:
1. Please analyses the company on the basis of liquidity and profitability
(Note: Please use the balance sheet and
2. Please comment on the efficiency factor (capital rotation
factor) of the business.
3. The following cash flow statement (for the year ending
December 31, 2000) is prepared based on the P&L and
Balance Sheet data of the case. Please read the cash flow very
carefully and comment on the errors.
Cash flow statement For the year ending
December 31, 2000
OPERATIONS:
Net Income $ 103,000
Add: Amortization 93,000
$ 196,000
Accounts Receivable $(200,000)
Inventory (110,000)
Prepaids 5,000
Accounts Payable 130,000 $ (175,000)
Net Cash Flow from Operations $ 21,000
FINANCING ACTIVITIES:
Bank Indebtedness $ 134,000
Long-term Debt (50,000)
Share 85,000
Dividends (50,000)
Net Cash Flow from Financing $ 119,000
INVESTING ACTIVITIES:
Fixed Asset Purchases $(110,000)
Net Cash Flow $ 30,000
Cash, January 1, 2000 30,000
Cash, December 31, 2000 $ 60,000
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