In addition to common- size financial statements, common€“ base year financial statements are often used. Common€“base year financial statements are constructed by dividing the current year account value by the base year account value. Thus, the result shows the growth rate in the account. Using the following financial statements, construct the common-size balance sheet and common€“base year balance sheet for the company. Use 2011 as the base year.

The discussion of EFN in the chapter implicitly assumed that the company was operating at full capacity. Often, this is not the case. For example, assume that Rosengarten was operating at 90 percent capacity. Full-capacity sales would be $ 1,000/. 90 = $ 1,111. The balance sheet shows $ 1,800 in fixed assets. The capital intensity ratio for the company is
Capital intensity ratio = Fixed assets/ Full-capacity sales = $ 1,800/$ 1,111 = 1.62
This means that Rosengarten needs $ 1.62 in fixed assets for every dollar in sales when it reaches full capacity. At the projected sales level of $ 1,250, it needs $ 1,250 3 1.62 = $ 2,025 in fixed assets, which is $ 225 lower than our projection of $ 2,250 in fixed assets. So, EFN is only $ 565 €“ 225 = $340.

JARROW CORPORATION 2011 and 2012 Balance Sheets Assets Liabilities and Owners' Equity 2011 2012 2011 2012 Current assets Current liabilities Cash Accounts recelvable 20,453 22,937 Notes payable Inventory $ 8014 9,954 Accounts payable 40,898 45.884 17.464 7,035 58,36262.919 36,822 41,797 24,000 31,000 Net plant and $215,370 $243,340 Common stock and 38,000 39.200 160.297 184,909 $198,297 $224,109 $ 65.289 74.688 Long-term debt Owners' equity Fixed assets paid-in surplus Retained earnings equipment Total liabilities and Total assets owners' equity $280.63 $280,659 $318,028