P2-10.The financial statements of Access Corporation for the year ended December 31, 2012, follow. Access Corporation Income Statement For the Year Ended December...

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P2-10.The financial statements of Access Corporation for the year ended December 31, 2012, follow.

Access Corporation

Income Statement

For the Year Ended December 31, 2012

__________________________________________________________________________________________________________ .

Sales revenue		$160,000
Less: Cost of goods sold^a		106,000
Gross profit		$ 54,000
Less operating expenses:
Selling expense	$16,000
General and administrative expense	10,000
Lease expense	1,000
Depreciation expense	10,000
Total operating expenses		37,000
Operating profit		$17,000
Less: Interest expense		6,100
Net profit before taxes		$10,900
Less: Taxes @ 40%		4,360
Net profits after taxes		$ 6,540

^aAccess Corporation’s annual purchases are estimated to equal 75 percent of cost of goods sold.

Access Corporation

Balance Sheet

As of December 31, 2012

Assets		Liabilities and Stockholders’ Equity
Cash	$ 500	Accounts payable	$ 22,000
Marketable securities	1,000	Notes payable	47,000
Accounts receivable	25,000	Total current liabilities	$ 69,000
Inventories	45,500	Long-term debt	22,950
Total current assets	$ 72,000	Total liabilities	$ 91,950
Land	$ 26,000	Common stock ^a	31,500
Buildings and equipment	$ 90,000	Retained earnings	26,550
Less: Accumulated depreciation	38,000	Total liabilities and stockholders’
Net fixed assets	$ 78,000	equity	$150,000
Total assets	$150,000

^aThe firm’s 3,000 outstanding shares of common stock closed 2012 at a price of $25 per share.

a. Use the preceding financial statements to complete the following table. Assume that the industry averages given in the table are applicable for both 2011 and 2012.

b. Analyze Access Corporation’s financial condition as it relates to (1) liquidity, (2) activity, (3) debt, (4) profitability, and (5) market value. Summarize the company’s overall financial condition.

Access Corporation’s Financial Ratios

	Industry Average	Actual Ratio 2011	Actual Ratio 2012
Current ratio	1.80	1.84
Quick (acid-test) ratio	.70	.78
Inventory turnover	2.50	2.59
Average collection period^a	37 days	36 days
Average payment period^a	72 days	78 days
Debt-to-equity ratio	50%	51%
Times interest earned ratio	3.8	4.0
Gross profit margin	38%	40%
Net profit margin	3.5%	3.6%
Return on total assets (ROA)	4.0%	4.0%