Warford Corporation was formed five years ago through a public subscription of common stock. Lucinda Street, who
Question:
The commercial loan officer of Bell National Bank requested financial reports for the last two fiscal years. These reports follow:
*Cash dividends were paid at the rate of $1.00 per share in fiscal year 2008 and $1.25 per share in fiscal year 2009.
*Depreciation charges on the plant and equipment of $100,000 and $102,500 for fiscal years ended March 31, 2008 and 2009, respectively, are included in cost of goods sold.
Required
a. Calculate the following items for Warford Corporation:
1. Current ratio for fiscal years 2008 and 2009
2. Acid-test (quick) ratio for fiscal years 2008 and 2009
3. Inventory turnover for fiscal year 2009
4. Return on assets for fiscal years 2008 and 2009
5. Percentage change in sales, cost of goods sold, gross profit, and net income after taxes from fiscal year 2008 to 2009
b. Identify and explain what other financial reports and/or financial analyses might be helpful to the commercial loan officer of Bell National Bank in evaluating Streets request for a time extension on Warfords notes.
c. Assume that the percentage changes experienced in fiscal year 2009, as compared with fiscal year 2008, for sales, cost of goods sold, gross profit, and net income after taxes, will be repeated in each of the next two years. Is Warfords desire to finance the plant expansion from internally generated funds realistic? Explain.
d. Should Bell National Bank grant the extension on Warfords notes, considering Streets statement about financing the plant expansion through internally generated funds?Explain.
Step by Step Answer:
Financial Reporting and Analysis Using Financial Accounting Information
ISBN: 978-1439080603
12th Edition
Authors: Charles H Gibson