Project 1: Financial Statement Analysis

Instruction: Students will work on the following project in groups and complete the project using Excel spreadsheet.

Bob Builder Construction Company (BBCC) is a large firm for kitchen appliance manufacturers. Peral, the finance manager of BBCC, submitted a justification to support the application for a short-term loan from the Queensville Interstate Bank (QIB) to finance increased sales. The consolidated income statement and balance sheet of BBCC are as follows.

BBCC Income Statement for 2018 and 2019 (thousand dollars)

	2018	2019
Sales	$40,909	$45,000
Cost of Goods Sold	$20,909	$23,000
Gross Profit	$20,000	$22,000
Selling and Administrative Expenses	$11,818	$13,000
Depreciation Expense	$2,000	$3,000
Operating Income (EBIT)	$6,182	$6,000
Interest Expense	$400	$412
Earnings before Taxes (EBT)	$5,782	$5,588
Income Taxes (@ 40%)	$2,313	$2,235
Net Income (NI)	$3,469	$3,353
Dividends Paid (@ 21.86%)	$758	$733

BBCC Balance Sheet as of End of 2018 and 2019 (thousand dollars)

	2018	2019
Assets:
Cash	$2,000	$1,800
Accounts Receivable (net)	$6,000	$7,600
Inventory	$5,000	$5,220
Plant and Equipment (gross)	$26,000	$31,000
Less: Accumulated Depreciation	$10,000	$13,000
Plant and Equipment (net)	$16,000	$18,000
Land	$1,000	$1,000
Liabilities:
Accounts Payable	$2,000	$2,600
Notes Payable	$3,000	$3,300
Accrued Expenses	$3,000	$3,100
Bonds Payable	$4,000	$4,000
Stockholders Equity:
Common Stock	$4,000	$4,000
Retained Earnings	$14,000	$16,620

5. Which ratios should you analyze more critically before recommending granting of the loan and what is your recommendation?