Rockway Framers Ltd. has requested a bank loan for a one-year period to refinanc
ID: 2559854 • Letter: R
Question
Rockway Framers Ltd. has requested a bank loan for a one-year period to refinance most of its notes payable. It would be supported by Rockway's current assets. The following statements and industry averages accompanied the loan request. 1. Prepare a statement of changes in financial position as at December 31, 2015, for Rockway, and complete a ratio analysis. Also prepare pro forma statements for 2016 on the basis of the same financial relationships as in 2015, no new capital asset purchases, and a sales increase of 25 percent. Recommend support or rejection of the loan request. 2. 3. ROCKWAY FRAMERS LTD. Balance Sheets December 31 2015 2014 Current assets: $1,300 $ 20,000 36,000 28,000 101,000 64,500 138,300 12,500 57,700 44500 222,000 155,000 85,000 62,000 $333,000 $250,000 Cash.. Accounts receivable....__ _ _. . . . _ _ _ . . . . _ _ _ . . Inventories . _ _ _ _ .. ._ _ . . ._ . _ _ _ _ . . . _ __ . . . Current liabilities: 48,77O $ 23.250 104,500 37,750 153,270 61.000 51,000 64,000 70,000 70,000 58,730 55,000 $333,000 $250,000 Total current liabilities..._ _ _ _ . _ _ _ . _ . . _ __ . . . .Explanation / Answer
Description
2015
2015%
2016
Sales
$355,200
$444,000
Cost of Goods Sold
$213,120
60%
$266,400
Contribution Margin
$142,080
40%
$177,600
Sales and Administration Expenses
$82,140
23%
$102,675
Amortisation
$23,000
6%
$28,750
Operating Income
$36,940
10%
$46,175
Interest
$14,200
4%
$17,750
Earnings before taxes
$22,740
6%
$28,425
Taxes
$5,685
2%
$7,106
Net Income
$17,055
5%
$21,319
Dividend
$16,656
Carried to Balance Sheet
$4,663
Statement of Financial Position for 2015
Operating Activities
Amount
Net income before taxes
$22,740
Add: Amortisation
$23,000
Add: Interest
$14,200
Cash flows from operations
$59,940
Changes in working capital
Increase in Accounts receivable
($8,000)
Increase in Inventories
($36,500)
Increase in Accounts Payable
$25,520
Increase in Notes Payable
$66,750
Cash provided by operating activities
$107,710
Less: Income taxes
($5,685)
Cash flow from Operating activities
$102,025
Investing Activities
Purchase of land
($13,200)
Purchase of building and equipment
($67,000)
Cash flow from Investing activities
($80,200)
Financing Activities
Repayment of long-term debt
($13,000)
Interest paid
($14,200)
Dividends paid
($13,325)
Cash flow from Financing activities
($40,525)
Net increase / decrease in cash
($18,700)
Opening Cash
$20,000
Closing Cash
$1,300
2015
2014
Change
2016
% of Sales / COGS in 2015
ASSETS
Current Assets
Cash
$1,300
$20,000
($18,700)
$20,031
Accounts Receivables
$36,000
$28,000
$8,000
$45,000
10%
Inventories
$101,000
$64,500
$36,500
$126,250
47%
Total Current Assets
$138,300
$112,500
$25,800
$191,281
Land
$57,700
$44,500
$13,200
$57,700
Buildings and Equipment
$222,000
$155,000
$67,000
$222,000
Less: Accumulated depreciation
($85,000)
($62,000)
($23,000)
($108,000)
Total Assets
$333,000
$250,000
$83,000
$362,981
LIABILITY AND STOCKHOLDERS EQUITY:
Current Liabilities
Accounts Payable
$48,770
$23,250
$25,520
$60,963
23%
Notes Payable
$104,500
$37,750
$66,750
$130,625
49%
Total current liabilities
$153,270
$61,000
$92,270
$191,588
Non-Current Liabilities
Long term Debt
$51,000
$64,000
($13,000)
$38,000
Total Non-Current Liabilities
$51,000
$64,000
($13,000)
$38,000
Total Liabilities
$204,270
$125,000
$79,270
$229,588
STOCKHOLDER'S EQUITY
Common Stock
$70,000
$70,000
$0
$70,000
Retained Earnings
$58,730
$55,000
$3,730
$63,393
Total Stockholder's Equity
$128,730
$125,000
$3,730
$133,393
Total Liability and Stockholders Equity
$333,000
$250,000
$83,000
$362,981
Ratios
Industry Avg
2016
Profit Margin
3.50%
4.80%
Return on Assets
4.00%
5.87%
Return on Equity
8.20%
15.98%
Gross Margin
38.00%
40.00%
Receivables Turnover
9.73
9.87
Average Collection Period
37.51
36.99
Inventory Turnover
2.50
2.11
Capital Asset Turnover
2.08
3.33
Total Asset Turnover
1.14
1.22
Current Ratio
1.80
1.00
Quick Ratio
0.70
0.34
Debt to Total Assets
58.00%
10.47%
Times Interest Earned
3.80
2.60
As the projected Ratios of the Company are better than Industry Averages, providing finance facilities to the Company can be recommended
Description
2015
2015%
2016
Sales
$355,200
$444,000
Cost of Goods Sold
$213,120
60%
$266,400
Contribution Margin
$142,080
40%
$177,600
Sales and Administration Expenses
$82,140
23%
$102,675
Amortisation
$23,000
6%
$28,750
Operating Income
$36,940
10%
$46,175
Interest
$14,200
4%
$17,750
Earnings before taxes
$22,740
6%
$28,425
Taxes
$5,685
2%
$7,106
Net Income
$17,055
5%
$21,319
Dividend
$16,656
Carried to Balance Sheet
$4,663
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