Lending: Case 2 Boat Builders

Topics: Generally Accepted Accounting Principles, Inventory, Balance sheet Pages: 3 (672 words) Published: April 3, 2011
Financial Analysis of Boat Builders

Boat Builders Case 2
Some changes that must be made to the financial statements in case 1 of Boat Builders. The Debtors figure in the Balance should be increase by $280,000 that DSFE owe the company. As a result of this the current year’s total current assets should be $387717 instead of $107717, and total assets should be $637178 instead of $357178. Also the interest payable on the loan is under stated and need to be adjusted. The Interest should be $6,004.8 which is ten percent of the $6, 0048 fixed term loan 2 instead of $838. Also there are not provisions made for taxation on the company’s overdraft.

1. Ratios Analysis of Boat Builders
Short term liquidity
Current Ratio= Current Asset/Current Liabilities

Last Year= 134085/102031 = 1.314
Current Year = 387717/219781 = 1.76

Last year the company had a current ratio of 1.314 which is average. This means that the company was liquid enough to meet its short term obligations, but just. And then in the current year the ratio grow to 1.796 as the company becomes more liquid.

Quick Ratio = quick asset/current liabilities

Last Year = 134085-3000/102031-66875 = 2.728
Current Year = 387717-30000/219781-4000 = 1.66

Last year the company had a quick ratio of 2.728 which shows that the company had enough liquidity to meet its obligations. In the current the company becomes a little less liquid but still able to meet its short term obligations if they fall due. Debtors Turnover = trade debtors/avg daily sales

Last Year = 35530/(418829/365) = 21
Current Year = 315168/(1692538/365)= 68
Boat builders collected at a rate of 21 times from their debtors last year. In the current year they were able to collect 68 times on average as the company becomes more efficient in collecting from its debtors

Stock Turnover = Avg stock/daily cost of sales
Last Year = 30000/715.32 = 41.94
Current Year = 30000/3903.61 = 7.68
Last Year the company turnover its...
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