2: Financial Statement and Cash Flow AnalysisAluminium Industries Pty Ltd
Balance sheet as at 30 June 2016
Assets Liabilities and shareholders’ equity
Current assets Current liabilities
Cash $ 1,000,000 Accounts payable $ 8,000,000
Marketable securities 3,000,000 Notes payable 8,000,000
Accounts receivable 12,000,000 Accruals 500,000
Inventories 7,500,000 Total current liabilities $16,500,000
Total current assets $23,500,000 Long-term debt (including financial leases) $20,000,000
Fixed assets (at cost) Total liabilities $36,500,000
Land and buildings $11,000,000 Shareholders’ equity
Machinery and equipment 20,500,000 Preferred shares (25,000 shares, $4 dividend) $ 2,500,000
Furniture and fixtures 8,000,000 Ordinary shares (1 million shares, $5 par) 5,000,000
Gross fixed assets $39,500,000 Paid-in capital in excess of par 4,000,000
Less: Accumulated depreciation 13,000,000 Retained earnings 2,000,000
Net fixed assets $26,500,000 Total shareholders’ equity $13,500,000
Total assets $50,000,000 Total liabilities and shareholders’ equity $50,000,000Industry averages
Debt ratio 0.51
Debt/equity ratio 1.07
Times interest earned ratio 7.30P2-3 Use the following financial data for Greta’s Gadgets Pty Ltd to determine the effect of using
additional debt financing to purchase additional assets. Assume that an additional $1 million of
assets is purchased with 100% debt financing with a 10% annual interest rate.
Greta’s Gadgets Pty Ltd
income statement
for the year ended 30 June 2016
Sales $4,000,000
Less: Costs and expenses @ 90% 3,600,000
Earnings before interest & taxes $ 400,000
Less: Interest (0.10 × $1,000,000) 100,000
Earnings before taxes $ 300,000
Less: Taxes = 40% 120,000
Net income $ 180,000Greta’s Gadgets Pty Ltd balance sheet as at 30 June 2016
Assets Liabilities and shareholders’ equity
Current assets $ 0 Current liabilities $ 0
Fixed assets 2,000,000 Long-term debt @ 10% 1,000 000
Total assets $2,000,000 Total liabilities $1,000 000
Ordinary shares $1,000,000
Total liabilities and shareholders’ equity $2,000,000