R. C. Dare is considering an investment in Deval Leasehold Improvements Ltd., a

Question

R. C. Dare is considering an investment in Deval Leasehold Improvements Ltd., a growing company that has been in business for five years. The good growth is the result of a reputation built on high-quality workmanship, the use of first-class materials, and fair prices.. However, Deval has experienced cash flow difficulties, and some of Deval's suppliers have expressed concern with the slow payment on their accounts. This can be attributed in part to the increasing number of government jobs awarded Deval. Although the government jobs are steady work, payment is slower than from private work. Examine the financial statements of Deval Leasehold for the past three years and decide if you would recommend an equity investment of approximately $15,000 by R. C. Dare. Prepare the 13 ratios of Chapter 3' as well as the asset utilization variations to support your recommendation. Also comment on the firm's leverage. DEVAL LEASEHOLD IMPROVEMENTS LTD. Income Statement 2013 2014 2015 $245.109 $195,200 $142.481 168.145 130,198 83.351 76,964 65,002 59.130 71.672 60,133 54.416 4.714 1.100 3.614 650 2.964 612 Sales Other expenses.. . … 5,292 800 4,492 809 3.683 612 4,869 950 3,919 705 3,214 612 Earnings before taxes Earnings available to common shareholders

Explanation / Answer

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Profitability ratios 2013 2014 2015 Profit margin 3683/245109=1.5% 1.65% 2.08% Return on assets 3683/65451=5.6% 6.44% 8.25% Gross margin 76964/245109=31.4% 33.3% 41.5% Return on equity 3683/17180=21.4% 22.78% 25.75% Liquidity ratio Current ratio 1.35 1.5 1.99 Quick ratio 1.4 1.70 2.22 Debt to total assets 0.73 0.71 0.67

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