BADM 321   Financial Management   Financial Statement Review

 

Ajax Construction Company, a family-owned business, expects $9 million in sales this year, 10% less than last year. 

 

Examination of previous years’ income statements reveals that direct operating expenses, labor and material, is 60 percent of sales and depreciation is eight percent of fixed assets net of accumulated depreciation.  Sales commissions and other administrative expenses are $800,000 per year.  Ajax pays 25 percent of EBT in income taxes.

 

Interest on the notes payable is 8 percent per year and 10 percent on the long-term debt.  $400,000 of the long-term debt is scheduled for repayment this year.

 

The following balance sheet items directly related to sales – accounts payable and receivable, inventory, and cash – are proportional to sales. They will pay no dividends to the family members holding stock in the company and do not plan to purchase any new capital this year.

 

Last year’s balance sheet was as follows:

 

Assets

Amount

 

Liabilities and Net Worth

Amount

Cash

100,000

 

Accounts Payable

100,000

Accounts Receivable

80,000

 

Notes Payable

200,000

Inventory

400,000

 

Long-term Debt

6,400,000

Net Fixed Assets

10,000,000

 

Net Worth

3,880,000

Total Assets

10,580,000

 

Total Liabilities & Net Worth

10,580,000