Balance Sheet Issues

Question

• What problems are shown when analyzing the balance sheet?

• What liquidity ratios are a problem?

Assets

Cash6%

Se-curi-ties4%

AR25%

Inventory22%

Pre-paid Ex-

penses

1%

Property/Plant32%

Intangibles9%

2007

Cash6%

Securi-ties7%

AR22%

Inventory21%

Pre-paid Ex-

penses

2%

Property/Plant34%

Intangibles8%

2008

ASSETS

Cash1%

AR18%

Inventory19%

Prepaid Expenses2%

Property/Plant55%

Intangibles6%

2009

Liabilities

Notes Payable1%

Accounts Payable4%

Accrued Expenses

6%

Income Tax

Payable7%

Current Maturities

2%Long-Term Debt16%

All stock16%Paid-in

Capital16%

Retained Earn-ings31%

2007

Notes Payable1%

Accounts Payable4% Ac-

crued Ex-

penses7% Income

Tax Payable

5%Current Maturi-

ties2%

Long-Term Debt13%

All stock15%

Paid-in Capital15%

Retained Earnings38%

2008

Liabilities

Notes Payable1%

Accounts Payable7%

Accrued Expenses5%

Income Tax Payable4%

Current Maturities2%

Long-Term Debt28%

All stock10%

Paid-in Capital10%

Retained Earnings

33%

2009

Liquidity Ratios

Industry Average

2.3

2.86 3

2.1

Current Ratio

Industry Average

2.3

1.711.82

1

Quick Ratio

Implications/Conclusions

• Working capital is on a downward trend• Long-term liabilities are more than working

capital which is not recommended• Both current ratio and quick ratio are below

industry average• X-Cal may be approaching a cash crunch which

will prevent the company from meeting payables

Recommendations

• Increase profits• Speed up AR cycle• Dispose of old/unused fixed assets and retain

cash proceeds• Reduce short-term debt

• Analyzing your financial ratios (n.d.). Retrieved July 26, 2009, from http://va-interactive.com/inbusiness/editorial/finance/ibt/ratio_analysis.html#top

• Ramhood15. (2009, January 10). Financial ratios and meanings. Message posted to http://www.docstoc.com/docs/3476499/Financial-Ratios-and-Meanings-Liquidity-Ratios-Current-Ratio-Formula-Current