(Ratio Computations and Additional Analysis) Bradburn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Bradburn and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2018, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two \(35,000 notes, which are due on June 30, 2018, and September 30, 2018. Another note of \)6,000 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date. Brown explained that Bradburn’s cash flow problems are due primarily to the company’s desire to finance a \(300,000 plant expansion over the next 2 fiscal years through internally generated funds. The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years

BRADBURN CORPORATION BALANCE SHEET MARCH 31
Assets	2018	2017
Cash	\) 18,200	\( 12,500
Notes receivable	148,000	132,000
Accounts receivable (net)	131,800	125,500
Inventories (at cost)	105,000	50,000
Plant & Equipment (net of depreciation)	1,449,000	1,420,500
Total assets	\)1,852,000	\(1,740,500
Liabilities and Stockholders’ Equity
Accounts payable	\) 79,000	\( 91,000
Notes payable	76,000	61,500
Accrued liabilities	9,000	6,000
Common stock (130,000 shares, \)10 par)	1,300,000	1,300,000
Retained earnings*	388,000	282,000
Total liabilities and stockholders’ equity	\(1,852,000	\)1,740,500

Depreciation charges on the plant and equipment of \(100,000 and \)102,500 for fiscal years ended March 31, 2017, and 2018, respectively, are included in the cost of goods sold.

Instructions

A. Compute the following items for Bradburn Corporation.

5. Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2017 to 2018.

Step by step solution

01

Meaning of Ratio Analysis

The study of various portions of financial informationin a business's financial statements is known as ratio analysis. Outside analysts mostly utilize them to figure out things like a company's profitability, liquidity, and solvency.

02

Computation percentage changes  

Calculation of percentage changes

Percent changes Amounts Percent Increase
	2018	2017
Sales revenue	$3,000,000	$2,700,000	11.11%
Cost of goods sold	1,530,000	1,425,000	7.37%
Gross margin	1,470,000	1,275,000	15.29%
Net income after taxes	366,000	297,000	23.23%

Working Notes:

Calculation of percent increase in sales revenue

$$\begin{gathered} \mathrm{Percent}\mathrm{increase}=\frac{\mathrm{Difference}\mathrm{in}\mathrm{amount}\mathrm{of}\mathrm{sales}\mathrm{revenue}\mathrm{of}2018\mathrm{and}2017}{\mathrm{Base}\mathrm{year}\mathrm{amount}} \\ =\frac{\$3,000,000-\$2,700,000}{\$2,700,000} \\ =\frac{\$300,000}{\$2,700,000} \\ =11·11\% \end{gathered}$$

Calculation of percent increase in the cost of goods sold

$$\begin{gathered} \mathrm{Percent}\mathrm{increase}=\frac{\mathrm{Difference}\mathrm{in}\mathrm{amount}\mathrm{of}\mathrm{cost}\mathrm{of}\mathrm{goods}\mathrm{sold}\mathrm{of}2018\mathrm{and}2017}{\mathrm{Base}\mathrm{year}\mathrm{amount}} \\ =\frac{\$1,530,100-\$1,425,000}{\$1,425,000} \\ =\frac{\$105,100}{\$1,425,000} \\ =7·37\% \end{gathered}$$

Calculation of percent increase in the gross margin

$$\begin{gathered} \mathrm{Percent}\mathrm{increase}=\frac{\mathrm{Difference}\mathrm{in}\mathrm{amount}\mathrm{of}\mathrm{cost}\mathrm{of}\mathrm{goods}\mathrm{sold}\mathrm{of}2018\mathrm{and}2017}{\mathrm{Base}\mathrm{year}\mathrm{amount}} \\ =\frac{\$1,470,000-\$1,275,000}{\$1,275,000} \\ =\frac{\$195,000}{\$1,275,000} \\ =15·29\% \end{gathered}$$

Calculation of percent increase in the net income after taxes

$$\begin{gathered} \mathrm{Percent}\mathrm{increase}=\frac{\mathrm{Difference}\mathrm{in}\mathrm{amount}\mathrm{of}\mathrm{cost}\mathrm{of}\mathrm{goods}\mathrm{sold}\mathrm{of}2018\mathrm{and}2017}{\mathrm{Base}\mathrm{year}\mathrm{amount}} \\ =\frac{\$366,000-\$297,000}{\$297,000} \\ =\frac{\$69,000}{\$297,000} \\ =23·23\% \end{gathered}$$

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