Silver Cloud Computing is a company that provides cloud computing services. The
ID: 341208 • Letter: S
Question
Silver Cloud Computing is a company that provides cloud computing services. The company commenced operations on March 1, 2016. It acquired financing from the issuance of common stock for $40,000,000 and issuance of 4% bonds that mature in 2026 for $30,000,000. The income statements and balance sheets for the first two years are provided in a separate Excel spreadsheet. All amounts are in thousands.
Required:
The Chief Executive Officer (CEO) is interested in increasing sales and decreasing expenses. You have been requested to prepare a report that provides analysis of the financial statements and recommendations to improve the financial performance of the company. Your report should include the following items:
Calculate the following ratios and provide an analysis of the company based on the ratios: (Show Work)
Return on Equity=
PPE Turnover=
Total Liabilities to Equity=
Times Interest Earned=
SILVER CLOUD COMPUTING
$180
SILVER CLOUD COMPUTING
$70,000
SILVER CLOUD COMPUTING
Income Statements For the Years Ended February 28, 2018 and 2017 fye 2/28/2018 fye 2/28/2017 (in thousands) (in thousands) Sales $225,000 $200,000 Sales Discounts 3,375 2,500 Net Sales 221,625 197,500 Wages and Salaries 73,500 70,000 Bad Debt Expense 2,100 2,000 Depreciation 20,000 20,000 Marketing Expense 33,750 30,000 Occupancy Expense 54,000 54,000 Research & Development 22,500 20,000 Total Expenses 205,850 196,000 Income from Operations 15,775 1,500 Interest Expense 1,200 1,200 Income Before Taxes 14,575 300 Income Taxes (40%) 5,830 120 Net Income $8,745$180
Explanation / Answer
Ratio Analysis
2018
2017
return on equity
net income/average total equity
19.63%
0.45%
net income
8745
180
average total equity
(48925+40180)/2
44552.5
(40000+40180)/2
40090
PPE turnover ratio
sales/average total assets
7.3875
3.95
sales
221625
197500
average total assets
(20000+40000)/2
30000
(60000+40000)/2
50000
total liability to equity
total liability/total equity
0.9163
0.948731
total liability
9000+5830+30000
44830
30000+8000+120
38120
total equity
40000+8925
48925
40000+180
40180
times interest earned
EBIT/interest
13.14583
1.25
EBIT
15775
1500
Interest
1200
1200
Company performanc is increasing in terms of profitability, turnover, solvency as its return on equity ratio, PPE turnover and total liability ratio is improving over the period. It times interest ratio is has also increased upto 13.14 times of interest payment
Ratio Analysis
2018
2017
return on equity
net income/average total equity
19.63%
0.45%
net income
8745
180
average total equity
(48925+40180)/2
44552.5
(40000+40180)/2
40090
PPE turnover ratio
sales/average total assets
7.3875
3.95
sales
221625
197500
average total assets
(20000+40000)/2
30000
(60000+40000)/2
50000
total liability to equity
total liability/total equity
0.9163
0.948731
total liability
9000+5830+30000
44830
30000+8000+120
38120
total equity
40000+8925
48925
40000+180
40180
times interest earned
EBIT/interest
13.14583
1.25
EBIT
15775
1500
Interest
1200
1200
Company performanc is increasing in terms of profitability, turnover, solvency as its return on equity ratio, PPE turnover and total liability ratio is improving over the period. It times interest ratio is has also increased upto 13.14 times of interest payment
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