Income Statement And Balance Sheet From Form 10-K Of Target Company

Income Statements

Target Company

Year Ended June 30,

        2011

       2010

Sales Revenue

$

  69,943

$

  62,484

Operating expenses:

Cost of revenue

15,577

12,395

Research and development

9,043

8,714

Sales and marketing

13,940

13,214

General and administrative

4,222

4,063

Total operating expenses

42,782

38,386

Operating income

27,161

24,098

Other income (expense)

910

915

Income before income taxes

28,071

25,013

Provision for income taxes

4,921

6,253

Net income after tax

$

23,150

$

18,760

                                                     BALANCE SHEETS

                                                    TARGET COMPANY

  

As at June 30,                                                                                   2011                  2010

Assets

Current assets

   Cash                                                                                  $           9610      $          5505

   Short term investments                                                                43162                31283

   Accounts receivable                                                                     14987                13014            

                                                                                                                                                      

Total current assets                                                                         67759                49802

Non-current assets

Property and equipment                                                                    8162                 7630

                                                                                                                                                      

Total Assets                                                                         $         75921   $         57432

Liabilities and Stockholders’ Equity

Current liabilities

  Accounts payable                                                              $           4197    $          4025

  Short-term debt                                                                              0                      1000

                                                                                                                                                      

Total current liabilities                                                                     4197                5025

Non-current liabilities

Long-term debt                                                                               11921               4939

Total liabilities                                                                     $         16118    $         9964

CALCULATION OF LIQUIDITY RATIOS

Current ratio = Current liability ÷ Current assets

      For 2010 = 5025 ÷ 49802 = 0.1

      For 2011 = 4197 ÷ 67759 = 0.06

Net working capital to sales ratio = (Current Assets – Current liabilities) ÷ Sales

                  For 2010 = (49802 – 5025) ÷ 62484 = 0.72

                  For 2011 = (67759 – 4197) ÷ 69943 = 0.91

CALCULATION OF PROFITABILITY RATIOS

Gross profit margin = Gross income ÷ Sales

                 For 2010 = 25013 ÷ 62484 = 0.4

                 For 2011 = 28071 ÷ 69943 = 0.4

Operating profit margin = Operating income ÷ Sales

                 For 2010 = 24098 ÷ 62484 = 0.39

                 For 2011 = 27161 ÷ 69943 = 0.39

SUMMARY

The company’s performance improved in the year 2011 in comparison to the year 2012. This is evident through current ratio which dropped from 0.1 to 0.06. The net working capital also rose from 0.72 in 2010 to 0.91 in 2011. In terms of profit, gross profit margins and operating profit margins remained the same in both years.

The recommendations that I would give to a bank in extending credit facilities to Target Company is that they are viable and can repay the credit amicably. This is because the net working capital is increasing. To the insurance company, Target Company can insure with them. This is because they have long term debts of which some of them could become bad-debts. Finally to the investor, Target Company is a profitable company hence I would recommend they invest with it by buying stocks. This is because their profitability is increasing as evident in comparing its gross profit margin and the operating profit margin.

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