Ratio Computations and Additional Analysis Brad burn

Corporation
Ratio Computations and Additional Analysis Brad burn Corporation was formed 5 years ago
through a public subscription of common stock. Daniel Brown, who owns 15% of the common
stock, was one of the organizers of Brad burn and is its current president. The company has
been successful, but it currently is experiencing a shortage of funds. On June 10, Daniel Brown
approached the Topeka National Bank, asking for a 24-month extension on two $35,000 notes,
which are due on June 30, 2011, and September 30, 2011. Another note of $6,000 is due on
March 31, 2012, but he expects no difficulty in paying this note on its due date. Brown explained
that Brad burn’s cash flow problems are due primarily to the company’s desire to finance a
$300,000 plant expansion over the next 2 fiscal years through internally generated funds. The
commercial loan officer of Topeka National Bank requested financial reports for the last 2 fiscal
years. These reports are reproduced on page 1369.(a) Compute the following items for Brad
burn Corporation.(1) Current ratio for fiscal years 2010 and 2011.(2) Acid-test (quick) ratio for
fiscal years 2010 and 2011.(3) Inventory turnover for fiscal year 2011.(4) Return on assets for
fiscal years 2010 and 2011. (Assume total assets were $1,688,500 at 3/31/09.)(5) Percentage
change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year
2010 to 2011.(b) Identify and explain what other financial reports and/or financial analyses
might be helpful to the commercial loan officer of Topeka National Bank in evaluating Daniel
Brown’s request for a time extension on Brad burn’s notes.(c) Assume that the percentage
changes experienced in fiscal year 2011 as compared with fiscal year2010 for sales and cost of
goods sold will be repeated in each of the next 2 years. Is Brad burn’s desire to finance the
plant expansion from internally generated funds realistic? Discuss.(d) Should Topeka National
Bank grant the extension on Brad burn’s notes considering Daniel Brown’s statement about
financing the plant expansion through internally generated funds?Discuss.View Solution:
Ratio Computations and Additional Analysis Brad burn Corporation
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