Question

(Analyzing common-size financial statements) Use the common-size financial statements found here: to respond to your boss' request that you write up your assessment of the firm's financial condition. Specifically, write up a brief narrative that responds to the following questions: a. How much cash does Patterson have on hand relative to its total assets? b. What proportion of Patterson's assets has the firm financed using short-term debt? Long-term debt? c. What percent of Patterson's revenues does the firm have left over after paying all of its expenses (including taxes)? d. Describe the relative importance of Patterson's major expense categories, including cost of goods sold, operating expenses, and interest expenses. a. How much cash does Pattersort Lanta The cash Patterson has on hand 0 Data Table Common-Size Balance Sheet 2016 540 6 1.6 % Cash and marketable securities Accounts receivable 6,010 18.2 Inventory 9,480 28.7 4 Total current assets Net property, plant, and equipment 16,030 17,030 33,060 Total assets Accounts payable 7,190 6,820 Short-term notes Total current liabilities 48.5 % 51.5 100.0 % 21.7 % 20.6 42.4 % 21.3 63.7 % 36.3 100.0 % 14,010 7,040 Long-term liabilities Total liabilities 4 Total common shareholders' equity 21,050 12,010 33,060 Total liabilities and shareholders' equity Common-Size Income Statement $ Revenues Cost of goods sold Gross profit Operating expenses Net operating income 2016 30,010 100.0 % (20,000) 66.6 10,010 33.4 % (8,020) 26.7 1,990 6.6% (950) 3.2 1,040 3.5 % (378) 1.3 6622.2% Interest expense Earnings before taxes Income taxes Net income Print Done

Answer 1

1: Cash relative to Total assets = 1.6%

2: Proportion of assets which are financed using short-term liabilities= current liabilities/total assets

= 42.4%

Proportion of assets financed with long-term liabilities= long-term liabilities/total assets

= 21.3%

3: revenues left after paying all expenses= net income/expenses= 2.2%

4: cost of goods sold represents the major proportion of expenses of the business at 66.6%. Operating expenses represent the next major portion of expenses at 26.7%. Interest expense is the minor expense and forms only 3.2% of the total revenue. Hence it does not pay a major role in determining the net income of the business.