Mortgage Loan

due to be renewed on February 1. The bank has requested the company’s current Income Statement and Balance Sheet that appear below.

Billy Bob Incorporated
Income Statement
Year Ended December 31
(in thousands)

Revenue:

Sales
$60,000

Other
4,500

Total revenue
64,500

Expenses:

Cost of goods sold
40,500

Selling and administrative
11,625

Depreciation and amortization
1,875

Interest
1,500

Total expenses
55,500

Income before income taxes
9,000

Income taxes
3,600

Net income
5,400

Less: Dividends to common shareholders ($3.86 per share)
2,550

Net income added to retained earnings
2,850

Retained earnings, beginning of year
8,550

Retained earnings, end of year
$11,400

Earnings per share
$8.18

Billy Bob Incorporated
Balance Sheet
As of December 31
(in thousands)

This Year
Last Year

Assets

Current assets:

Cash and marketable securities
$ 1,950
$ 1,575

Accounts receivable, net
3,600
3,750

Inventories
4,875
4,650

Prepaid items
375
225

Total current assets
10,800
10,200

Noncurrent assets:

Investments, at cost
7,950
7,950

Deposits
750
600

Property, plant, and equipment
21,000
19,500

Total assets
$40,500
$38,250

Liabilities and Shareholders’ Equity

Current liabilities:

Short-term loans
$ 1,650
$ 1,800

Accounts payable
5,400
5,325

Salaries and wages payable
1,950
2,025

Total current liabilities
9,000
9,150

Long-term debt
12,000
12,825

Total liabilities
21,000
21,975

Shareholders’ equity:

Common stock, at par
3,300
3,150

Paid-in capital in excess of par
4,800
4,575

Total paid-in capital
8,100
7,725

Retained earnings
11,400
8,550

Total shareholders’ equity
19,500
16,275

Total liabilities and shareholders’ equity
$40,500
$38,250

The bank has also requested that Billy Bob calculate a number of financial ratios. Billy Bob’s financial ratios have not yet been calculated for this year, but the company’s accounting staff has gathered the following industry averages for the ratios from various sources.

Industry Averages

Return on total assets……………………………….
6.4%

Return on common shareholders’ equity……………………………….
12.5%

Current ratio………………………………..
1.86:1

Acid-test (quick) ratio………………………………..
0.85:1

Debt-to-equity ratio………………………………..
1.23:1

Times interest earned ratio………………………………..
7.78:1

Dividend payout ratio………………………………..
39.6%

______________________________________…
Question

Use formulas referencing the cells in the IS and BS that you already prepared
[Suggestion] Figure out the correct answer using a calculator FIRST and then make sure this number matches your “formulated” number

By comparing the ratios calculated in Requirement 2 with the industry ratios, evaluate Billy Bob’s operation

What is your question? You need to have all of the income statement and all of the balance sheet in excel, then put those industry ratios in the same spreadsheet, at the bottom.

Now, using cell references (e.g. =B5*K12), calculate those same ratios for Billy Bob Incorporated. Look in your book, the formulas will be there. Then set up a third column that gives you the difference between the industry ratios and those you just calculated.

Using the comparison between what the industry standard is and your company, evaluate how your company is doing. For instance, if return on total assets for your company is less than the industry standard, then say that, and explain what that would mean for the company.

Good luck! :0)