Finance Income Statement Income $36,000.00 Cogs Gross Essay

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Finance

Income Statement

Income

$36,000.00

COGS

Gross Income

$36,000.00

Expenses

Rent

$9,600.00

Car

$5,062.00

Food

$4,784.00

Clothing

$1,481.00

Communications

Other Expenses

$1,675.00

Operating Income

$12,438.00

Interest Exp

$1,800.00

Income before taxes

$10,638.00

Income tax

$10,800.00

Net Income

Balance Sheet

Assets

Cash

Car

$14,600.00

Supplies

Total Assets

$15,365.40

Liabilities

Car Loan

$14,600.00

Credit Card

$5,000.00

Total Liabilities

$19,600.00

Equity

-$4,234.60

a) Bauman Company's current and quick ratios for the past four years are as follows:

Item

2009

2010

2011

2012

Current Ratio

Quick Ratio

b) The firm's liquidity during the 2009-2010 period was generally good. Both the current ratio and the quick ratio during this period were relatively high, to the point where a creditor would be comfortable lending this company money in the short run. There was, however, a decline in both ratios over this period. The current ratio slipped slightly, and there was an equally slight slip in the quick ratio. Neither decline was strong, and both were partially reversed the next year. The decline was because the current liabilities grew at a faster rate than the current assets.

c) This information would neither support nor conflict with my evaluation.

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Inventory played a less significant role in my evaluation than the current liabilities did; one would reasonably look at both the numerator and denominator for an explanation. Indeed, inventory growth in 2010 was slow compared with the growth in other current assets as well. Bauman's inventory turnover is well below the industry average, but that is not relevant to the firm's liquidity except in context of industry-average liquidity, figures for which we do not have. However, a slight increase in inventory turnover in the 2009-2011 period would, all other factors being equal, reduce the current ratio, because it would reduce the current assets relative to the growth of other factors like current liabilities. This assumes that ordinarily current asset and liabilities classes would grow with sales. So bearing in mind all of the assumptions, the movement in the current ratio is in line with expectations given the change in inventory turnover. That said, the turnover ratio is not particularly consequential. In 2011, for example, the only thing that changed on the balance sheet was other current assets. Perhaps some growth in inventory might have been expected,.....

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