Comprehensive Financial Statement Analysis Problem

| June 19, 2015

Comprehensive Financial Statement Analysis Problem

problem 10-14 from “managerial accounting by James Jiambalvo” on Page 552.
PROBLEM 14-20. Comprehensive Financial Statement Analysis [LO 1,2,5,6,7] Marty “Monk” Fisher owns the largest motorcycle dealership in southern Ohio. Recently, he was approached by Bob Sherman, founder of Mandrake Motorcycles, and offered the opportunity to be the sole distributor of Mandrake bikes in the state. Acceptance of the offer will require Monk to open a dedicated Mandrake showroom and repair facility and, obviously, stock Mandrake cycles and parts. Monk is quite impressed by the Mandrake product, but before making a major investment, he wants to be confident that the company will be around for the long haul. Accordingly, he has asked you to analyze the audited financial statements of Mandrake for the previous two years.
a. Prepare a horizontal and a vertical analysis of the 2012 and 2011 financial statements.
b. Calculate the following ratios for 2012 and 2011: return on assets, gross margin percentage, receivables turnover, days’ sales in receivables, inventory turnover, days’ sales in inventory, debt to equity, and times interest earned.
c. Based on your analysis in parts a and b, comment on any matters that Monk should probe in an upcoming meeting with Bob Sherman from Mandrake.
d. Based on the limited information available, do you think Monk should open a Mandrake showroom?
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