Reading and Understanding the Financial Statements

First most importing think to do when you analyze a BS is the equation. A=L+E

So, this BS its Ok. The total assets side (777 000 $) its = with total liabilities and stockholders’ equity (77
000 $).

Next, I'll examine the current assets.

-Cash and cash equivalents are 2 200 $ or 2.5 % of total current assets.

-Acc.receivable are 39 500 $ or 44% of total current assets.

-Inventory 31 000 $ or or 35 % of total current assets.

We can assume form this vertical analyze that this company is liquid because accounts receivables and
inventory can turn easy in cash.

The other step is to analyze the current liabilities.

-Current portion of long-term debt is 15 000 $,

-Account payable is 20 000 $

-Income taxes payable is 6 100 $

The company has 15 000$ of long-term debts and also, we can see that accounts payable take a good
place in the total of current liabilities, so by this we can conclude that a part of our inventory if financed
by company suppliers.

Next step are long term assets:

Long term assets in this company include Land, Buildings and Equipment ….a total of 337 000$

Buildings and Equipment are the largest items in company Long Term Assets of a total 381 000 $.

Also, intangible assets take part with a a large number in the long-term assets and that with 305 000 $ or
44% of total assets.

In the other side the long-term liabilities consist of notes payable, bonds payable and deferred income
taxes. We can notice that bonds payable are the largest item in this category with 78% of total liabilities.
The last part to analyze is Equity.

The Equity includes common stock, retained earnings and other type of income. And that:

Common stock 110 000 $

Retained earnings 220 000$ .

After passing by to each item in BS ,I can now assume that this company may have problems with paying
his debts, based on the cash money they have. (2200$).

They are investing too much on buying long term assets as equipment and buildings and not investing in
short term investments that will help with generating money quicker.

Conclusion:

The strength of a company's balance sheet can be evaluated by three broad categories of investment-
quality measurements: working capital, or short-term liquidity, asset performance, and capitalization
structure.

I can conclude that on these three aspects the company has problems. Is has low cash, wrong investments
and low currents assets compared with the long term one.

Proposed solutions for this company:

Invest a part the Retained earnings (220 000$) in currents assets so the company can pay a part of the
debts (short or long term).

Focus on bringing Innovation & Utilization of Resources so he can attract more customers.

Decrease the bonds payable.

Increase Productivity.