Common Size Balance Sheet

WARREN ROAD COMPANY

COMMON SIZE BALANCE SHEET
FOR YEARS ENDED IN 2005 AND 2006
in USD
2006 2005
Current Assets
Cash 3.40% 3.13%
Accounts Receivables 4.30% 5.00%
Inventory 6.80% 3.75%
Total Current Assets 14.50% 11.88%

Noncurrent Assets
Plant, Property, and Equipement 9.10% 6.88%
Total Noncurrent Assets 9.10% 6.88%
TOTAL ASSETS 23.60% 18.75%

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 23.60% 18.75%

Analysis/Observation
The common size balance sheet indicates that each dollar sales in 2006 required assets in place of
$0.24 while in 2005, each dollar sales required $0.19 assets in place. Warren Road company was more
efficient in 2005 when each dollar sales required lower level of assets

● Inventory was mainly inefficiently managed in 2006 vs 2005. wherein Warren Road Company needed
$6.80 in inventory stock for 2006 to produce sales of $100,000 as compared to only needing $3.75 in
inventory stock for the same amount of sales in 2005.

● PPE was also inefficiently utilized in 2006 where it costed more at $ 9.10 - in 2006 - versus $6.88 for
the previous year to produce $100,000 of sales
Financial Information
2006 2005

Cash 34,000.00 25,000.00

Accounts Receivables 43,000.00 40,000.00
Inventory 68,000.00 30,000.00
Plant, Property, and Equipement 91,000.00 55,000.00
TOTAL ASSETS 236,000.00 150,000.00

TOTAL LIABILITIES AND STOCKHOL 236,000.00 150,000.00

Sales 1,000,000.00 800,000.00

Reference:
ASS Chapter 14 Page 675
` ` `

DuPont Analysis

Company A Company B Company C

in USD
Net Income 6,400.00 2,775.00 540.00
Net Sales 40,000.00 42,000.00 31,500.00
a. Return on Sales 16.00% 6.61% 1.71%
Total Assets 103,600.00 32,250.00 4,800.00
b. Asset Turnover 0.39 1.30 6.56
Total Equity 40,666.00 16,950.00 2,535.00
c. Asset-to-Equity Ratio 2.55 1.90 1.89
d. Return on assets 6.18% 8.60% 11.25%
c. Return on equity 15.74% 16.37% 21.30%

Company C would be the the b.) Large supermarket since it has the highest Asset turnover
amongst the 3 companies selling a significant multiple assests per year. Supermarkets assests are
primarly the food the are one of the main neccesities of individuals. It also reflects on the ROA,
wherein in this case Company C also has the highest ROA that describes how efficient the
company utilizes the asset to produce sales. Also, this company has the lowest return on sales
since goods that are sold at supermarkets are closely monitored and therefore merchants cannot
dictate a price that would provide large profit margins.

Company A would be the c.) Large electric utility since it has the highest return on sales. It also
has the largest investment on asset among the 3 companies which would mean that substantial
electrical equipments would have been bought to provide the electric generation/output. It also has
the lowest asset turnover rate since not most of the assets under utility are sold or purchased
every year.

Therefore Company B would be the a.) Large department store with substantial investment in
assets and somewhat comparable ROA to the supermarket ROA.
`

Formulas
Financial Information = Profit Margin
in USD Company A Company B Company C Net income
=
Net Sales 40,000.00 42,000.00 31,500.00 ROE Net sales
Net Income 6,400.00 2,775.00 540.00 Net income
=
Total assets 103,600.00 32,250.00 4,800.00 Total Equity
Total equity 40,666.00 16,950.00 2,535.00 = Profit Margin
ROA Net income
=
Total Assets
x Total Asset Turnover x Financial Leverage
Net Sales Total Assets
x x
Total Assets Total Equity

x Total Asset Turnover

 Can Ratio be too Good?

1. Current ratio is indicative of a company's liquidity. In the case of Shaycole, it is a cash rich company that and
it has a great ability to pay for its debt in the short run. It also demonstrates the efficiency of the management
to manage the operating expenses to transform liabilites into assets. The disadvantage is that the ratio alone
may not be sufficient to analyze the liquidity of the company. The inventory may also cause overestimation of
liquidity for companies where higher inventory exists due to fewer sales or obsolete nature of the product which
may lead to incorrect liquidity health of the company. Also a high current ratio compared to their peer group
may indicate that the management is not using their assets effectively.

2. High number of days' sale in inventory would indicate that management has decided to maintain high
inventory levels in order to achieve high order fulfillment rates while on the other hand a large number indicates
that it may have invested too much in inventory, and may even have obsolete inventory on hand. Also another
disadvantage is aggregations where the inventory figure used in the calculation is for the aggregate amount of
inventory on hand, and so will mask small clusters of inventory that may be selling quite slowly.

3. High average collection period may indicate that the company is comfortable with allowing their customers to
extend their credit which can improve sales however, it can also indicate that the company has poor collection
process, bad credit policies, or possibly customers that are not financially viable or creditworthy. Companies
should reasses their policies to ensure timely collection of its receivables

4. The advantage of lower debt-to-equity ratio is that it demonstrates the lower risk of loan default by the
company for lenders. It can also mean that there is lower chance of bankruptcy in the event of an economic
downturn. It also highlights that the company does not have a great dependency on borrowed funds and that it
has a high ability to meet the interest payments and other financial obligations. On the other hand, having a low
debt may misguide potential investors as it may indicate that the company is not appropriately financing the
assets with the debt obtained and may reflect technical inefficiency and result in lower returns

5. Looking at the high current ratio for Shaycole, the company is highly capable of paying obligations and
therefore is a strong contender to request for a loan for greater financing of the company. The ROE can be
improved by using more financial leverage through loans as this will partially replace the equity with debt
resulting to a lower shareholders' equity. In effect, it will also improve the debt-to-equity ratio of Shaycole
compared to the Industry baseline.

It is also possible, given the excessively high current ratio - compared to Industry baseline - that Shaycole may
have huge cash on hand. Another option that may improve the ROE is to distribute the idle cash to purchase
more nventory or PPE that will boost production capacity or use it to save cost by paying debt resulting to lower
interest expenses.
 Financial Information days
Shaycole Industry Comparison
aycole, it is a cash rich company that and Current Ratio 4.70 1.90
ates the efficiency of the management
Number of days' sales in inventory 24.70 days 59.80
he disadvantage is that the ratio alone
ntory may also cause overestimation of Average collection period 13.30 days 42.00
s or obsolete nature of the product which
Debt-to-equity ratio 0.117 0.864
nt ratio compared to their peer group

ment has decided to maintain high

the other hand a large number indicates
bsolete inventory on hand. Also another
alculation is for the aggregate amount of
y be selling quite slowly.

mfortable with allowing their customers to

te that the company has poor collection
ally viable or creditworthy. Companies
es

he lower risk of loan default by the

nkruptcy in the event of an economic
pendency on borrowed funds and that it
gations. On the other hand, having a low
any is not appropriately financing the
d result in lower returns

capable of paying obligations and

ng of the company. The ROE can be
artially replace the equity with debt
he debt-to-equity ratio of Shaycole

o Industry baseline - that Shaycole may

to distribute the idle cash to purchase
ave cost by paying debt resulting to lower
Industry Comparison

days
days
 Ratio Analysis

2006 2005
a. Current Ratio 1.36 0.80
b. Debt-to-Equity Ratio 0.63 0.60
c. Debt Ratio 38.64% 37.50%
d. Asset Turnover 3.01 2.80
Accounts receivable turnover 33.13 32.00
e. Average Collection Period 11.02 days 11.41 days
Inventory Turnover 9.30 16.90
f. Number of days in sales Inventory 39.25 days 21.60 days
g. Fixed asset turnover 5.30 times 4.48 times
h. Times Interest Earned 14.00 times 21.00 times
i. Return on Sales 7.36% 6.25%
j. Return on Assets 22.16% 17.50%
k. Return on Equity 36.11% 28.00%

2. The company's financial position has improved from 2005 to 2006 based on
the current ratio that demonstrates that the company is more liquid in 2006 and is
able to cover for the short term and long term obligations.

The company has also been more efficient in 2006 compared to 2005 due to the
Asset turnover wherein for every dollor of asset in 2006 was able to produce
$3.01 .

Overall, based on the ROE and ROS, the company has improved performance in
terms of earning with respect to per dollar invested and to the dollar of sales in
2006 as compared in 2005.

3. Yes I would recommend the bank to make the large loan since the company is
well and able to cover for the short term and long term obligations based on the
current ratio (1.36). It also demonostrated that it has improved in terms of
efficiently using the fixed income assets in generating sales.
Financial Information
MAAS CORPORATION MAAS CORPORATION
Comparative Balance Sheet Comparative Income Statement
December 31 For the Years Ended December 31
in USD in USD
2006 2005 2006 2005
Assets Sales 265,000.00 224,000.00
Cash 2,000.00 3,000.00 Cost of Goods Sold 186,000.00 169,000.00
Accounts Receivable 8,000.00 7,000.00 Gross margin on sales 79,000.00 55,000.00
Inventory 20,000.00 10,000.00 Operating expense 51,000.00 34,000.00
Property, plant, and equ 50,000.00 50,000.00 Operating income 28,000.00 21,000.00
Other assets 8,000.00 10,000.00 Interest expense 2,000.00 1,000.00
Total Assets 88,000.00 80,000.00 Income before taxes 26,000.00 20,000.00
Income Taxes 6,500.00 6,000.00
Liabilites and Stockholder Equity Net Income 19,500.00 14,000.00
Current liabilities 22,000.00 25,000.00
Long-term Liabilities 12,000.00 5,000.00
Paid-in Capital 30,000.00 20,000.00
Retained Earnings 24,000.00 30,000.00
Total Liabilities and Sto 88,000.00 80,000.00
Formulas
Current Assets
=
Current Ratio Current Liabilite
Total Liabilites
=
Debt Ratio Total Assets
Sales
=
Asset Turnover Total Assets
Total Liabilities
=
Debt-to-Equity Ratio Total Stockholders' Equity
Average account receivable
=
Average Collection Period Sales x 365
Average inventory
=
Number of days in sales inventory cost of goods sold x 365
Sales
=
Account receivable turnover Average account receivable
cost of goods sold
=
Inventory turnover Average inventory
Sales
=
Fixed asset turnover Average fixed asset
Operating Profit
=
Time interest earned Annual Interest Expense
 Ratio Analysis

1. PepsiCo Coca-Cola
Return on Equity 29.99% 30.85% Financial Information
Return on Sales 13.23% 20.66%
Asset turnover 1.06 0.77
Asset-to-Equity Ratio 2.13 1.94
Sales
2. PepsiCo Beverage Segment Net Income
Return on Sales 22.95% Total Assets
Asset Turnover 1.32 Total Equity
Return on Assets 30.31% 15.90%

3.
If we focus particularly in the Beverage segment of PepsiCo for
similar industry comparison, it has actually slightly out
performed Coca-Cola in terms of the profit made per dollar
sales at 22.95% vs 20.86%. In fact the former company is
almost double the efficiency in terms of using its asset to
generate sales compared to Coca-Cola.Similarly, PepsiCo's
Beverage segment is also double the effective rate in
generating profit at 30.31% versus Coca-Cola.
 in USD
PepsiCo Coca-Cola
Overall Beverages Overall
26,971.00 7,733.00 21,044.00
3,568.00 1,775.00 4,347.00
25,327.00 5,856.00 27,342.00
11,896.00 - 14,090.00
1. Ratio This year Last Year
a. amount of working capital 720,000.00 660,000.00 Assets
b. current ratio 1.90 2.53 Current Assets
c. acid-test ratio 0.71 1.14 Cash
d. average collection period 35.04 25.17 Marketable Securities
e. average sale period 89.48 63.48 Accounts receivable, net
f. operating cycle 124.52 88.65 Inventory
g. total asset turnover 1.67 1.77 Prepaid Expenses
h. debt-to-equity ratio 0.88 0.72 Total Current assets
i. times interest earned ratio 6.56 4.89 Plant and equipment net
j. equity multiplier 1.88 1.72 Total Assets

1 50,000.00 50,000.00 Liabilities and Stockholder Equity

a. Total earnings per share
b. dividend yield ratio
c. dividend payout
d. price-earnings ratio
5.6 3.92 Liabilities
14.66666667 12.66666667 Current Liabilities
0.392857143 0.484693878 Bonds payable, 12%
2.678571429 3.826530612 Total Liabilities
Stockholders' equity
50,000.00 Common stock, $15 per
Retained earnings
Total Stockholders' equity
Total Liabilites and Stockholders' equity
 Sabin Electronics Sabin Electronics
Comparative Balance Sheet Comparative Income Statement and Rec
in USD in USD
This year % % Last Year % %
Sales
Cost of goods sold
70,000.00 1.4% 2.3% 150,000.00 3.4% 6.1% Gross Margin
- 0.0% 0.0% 18,000.00 0.4% 0.7% Selling and administrative expense
480,000.00 9.6% 16.0% 300,000.00 6.9% 12.2% Net operating income
950,000.00 19.0% 31.7% 600,000.00 13.8% 24.4% Interest expense
20,000.00 0.4% 0.7% 22,000.00 0.5% 0.9% Net income before taxes
1,520,000.00 30.4% 50.7% 1,090,000.00 25.1% 44.3% Income taxes (30%)
1,480,000.00 29.6% 49.3% 1,370,000.00 31.5% 55.7% Net Income
3,000,000.00 60.0% 100.0% 2,460,000.00 56.6% 100.0% Common dividends
Net Income retained
kholder Equity Beginning retained earnings
Ending retained earnings
800,000.00 16.0% 26.7% 430,000.00 9.9% 17.5%
600,000.00 12.0% 20.0% 600,000.00 13.8% 24.4% Baseline Industry Ratio
1,400,000.00 28.0% 46.7% 1,030,000.00 23.7% 41.9% Current Ratio
Acid test Ratio
750,000.00 15.0% 25.0% 750,000.00 17.2% 30.5% Average collectio
850,000.00 17.0% 28.3% 680,000.00 15.6% 27.6% Average sale per
1,600,000.00 32.0% 53.3% 1,430,000.00 32.9% 58.1% Debt-to-equity rat
tockholders' equity 3,000,000.00 60.0% 100.0% 2,460,000.00 56.6% 100.0% Times interest ea
 Sabin Electronics
mparative Income Statement and Reconciliation
in USD
This year % Last Year %
5,000,000.00 1785.7% 4,350,000.00 2219.4%
t of goods sold 3,875,000.00 1383.9% 3,450,000.00 1760.2%
1,125,000.00 401.8% 900,000.00 459.2%
ng and administrative expense 653,000.00 233.2% 548,000.00 279.6%
operating income 472,000.00 168.6% 352,000.00 179.6%
72,000.00 25.7% 72,000.00 36.7%
income before taxes 400,000.00 142.9% 280,000.00 142.9%
me taxes (30%) 120,000.00 42.9% 84,000.00 42.9%
280,000.00 100.0% 196,000.00 100.0%
mmon dividends 110,000.00 39.3% 95,000.00 48.5%
Income retained 170,000.00 60.7% 101,000.00 51.5%
inning retained earnings 680,000.00 242.9% 579,000.00 295.4%
ing retained earnings 850,000.00 303.6% 680,000.00 346.9%

eline Industry Ratio

2.5
1.3
18 days
60 days
0.9
6