Problem: You have taken the following information from a firm’s financial statements. As an investor in the firm’s debt instruments, you are concerned with its liquidity position and its use of financial leverage. What conclusions can you draw from this information?
|
|
2004
|
2003
|
2002
|
|
Sales
|
$1,700,000
|
$1,500,000
|
1,000,000
|
|
Cash
|
18,000
|
7,000
|
5,000
|
|
A/R
|
152,000
|
130,000
|
1 25,000
|
|
Inventory
|
200,000
|
190,000
|
200,000
|
|
Current liabilities
|
225,000
|
210,000
|
175,000
|
|
Operating income
|
170,000
|
145,000
|
90,000
|
|
Interest expense
|
27,000
|
23,000
|
20,000
|
|
Tax
|
53,000
|
45,000
|
25,000
|
|
Net income
|
90,000
|
77,000
|
45,000
|
|
Debt
|
260,000
|
250,000
|
200,000
|
|
|
Equity
|
330,000
|
300,000
|
200,000
|
|