Profitability and Coverage Analysis: Online Accounting Tutorial & Questions

Profitability and Coverage Analysis

The financial statements of Friends Company that were utilized in our financial analysis are presented below:

Friends Company Balance Sheets for 20X7, 20X8 and 20X9 ($ in thousands)
	December 31
	20X9	20X8	20X7
Assets
Current assets:
Cash and cash equivalents	$ 3,300	$ 3,500	$ 2,200
Accounts receivable	2,900	2,800	2,750
Inventories	2,600	2,300	2,100
Prepaid expenses	760	930	850
Total current assets	9,560	9,530	7,900

Investments	8,380	7,900	4,080

Property, plant and equipment (at cost)
Land	200	200	200
Buildings	3,860	3,500	3,100
Machinery, equipment	8,720	7,620	7,200
Construction in progress	650	600	570
Less: Allowance for depreciation	(5,500)	(4,200)	(3,090)
Property, plant and equipment (net)	7,930	7,720	7,980

Goodwill	1,000	1,000	1,000

Total Assets	26,870	26,150	20,960

Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable	1,600	1,200	900
Accrued expenses	1,800	1,500	1,200
Income taxes payable	900	700	600
Warranty liability	1,000	800	660
Total current liabilities	5,300	4,200	3,360

Long-term notes payable	3,220	6,000	3,700

Stockholder's equity:
Common stock	250	250	250
Paid-in capital	500	500	500
Retained earnings	17,650	15,250	13,200
Treasury stock, at cost	(50)	(50)	(50)
Total stockholder's equity	18,350	15,950	13,900

Total Liabilities and Stockholder's Equity	26,870	26,150	20,960

Friends Company Income Statements for 20X7, 20X8, and 20X9 ($ in thousands)
	Year Ended December 31
	20X9	20X8	20X7
Sales	$ 14,000	$ 12,500	$ 10,000
Cost of sales	8,500	7,800	6,000
Gross profit	5,500	4,700	4,000

Selling, general and admin. expenses
General administration expenses	610	490	480
Selling expenses	460	400	350
Research and development	150	145	140
Total SG&A	1,220	1,035	970

Operating profit	4,280	3,665	3,030

Non-operating expenses
Interest revenues	160	120	100
Interest expenses	220	210	180
Total non-operating expenses	(60)	(90)	(80)

Income before taxes	4,220	3,575	2,950
Income taxes	1,520	1,275	1,150
Net income	2,700	2,300	1,800

Friends Company Consolidated Statement of Cash Flow in 2008 and 2009 ($ in thousands except share amounts)
	Years Ended December 31
	2009	2008
Cash flows from operating activities:
Net income	$ 2,700	$ 2,300
Add: Depreciation	1,300	1,110
Net change in working capital
Accounts receivable	(100)	(50)
Inventories	(300)	(200)
Prepaid expenses	170	(80)
Accounts payable	400	300
Accrued expenses	300	300
Income taxes payable	200	100
Warranty liability	200	140
Net cash provided by operating activities	4,870	3,920
Cash flows from investing activities:
Capital expenditures	(1,510)	(850)
Purchase of securities and other investments	(480)	(3,820)
Net cash used in investing activities	(1,990)	(4,670)
Cash flows from financing activities:
Proceeds from issuance of debt	-	2,300
Repayments of debt	(2,780)	-
Dividends paid to stockholders	(300)	(250)
Net cash (used in) provided by financing activities	(3,080)	2,050
Net cash flows	(200)	1,300
Cash and cash equivalents
At beginning of period	3,500	2,200
At end of period	$ 3,300	$ 3,500

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