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Accounting, Pages: 1

Ratios and Variance Analysis

Ratios and Variance Analysis

Calculations

  1. Calculate the current ratio for fiscal years 2025 and 2026.

2025: 320,000/158,00=2.02

2026: 403,000/164000=2.46

  1. Calculate the acid test (quick ratio) for fiscal years 2025 and 2026.

2025: 320,000-50,000/158500=1.70

2026: 403,000-105,000/164,000-1.82

  1. Calculate the inventory turnover for the fiscal year 2026.

2026 Inventory Turnover=Cost of goods sold/average inventory

1,530,000/77,500=19.7

  1. Calculate the return on assets for fiscal years 2025 and 2026. (Assume that total assets were $1,688,500 on 3/31/24.)

Return on asset= Net Income/ Average total assets

2025; 297,000/1,714,500=17.3%

2026: 366,000/1,796,250=20.4%

Percentage Changes

  1. Calculate the percentage change in sales from the fiscal year 2025 to 2026.

Sales 2025: 2,700,000

Sales 2026: 3,000,000

Change= (3,000,000-2,700,000) = 300,000

(300,000/2,700,000) * 100=11.11%

  1. Calculate the percentage change in the cost of goods sold from the fiscal year 2025 to 2026.

COGS: 105,000/1,425,000=7.37%

  1. Calculate the percentage change in gross margin from the fiscal year 2025 to 2026.

Gross Margin Change= (195,000/1,275,000) *100 = 15.29%

  1. Calculate the percentage change in net income after taxes from the fiscal year 2025 to 2026.

Change in Net Income After taxes= 69,000/297,000= 23.23%

Financial Decisions and Factors

  1. Describe at least one additional financial report or analysis that might be helpful to the commercial loan officer of Topeka National Bank in evaluating Daniel Brown’s request for a time extension on Bradburn’s notes.

A cash flow statement will be an additional financial report worth considering by Topeka National Bank. Notably, this statement can help the bank understand the aggregate data relating to the cash flow in and out of the company (Olayinka, 2022).

  1. Explain whether Bradburn’s desire to finance the plant expansion from internally generated funds is realistic. Assume that the percentage changes experienced in fiscal year 2026 compared to fiscal year 2025 for sales, cost of goods sold, and operating expenses will be repeated in the next two years. Consider the following question to guide your response:
    1. What will the percentage changes for sales, cost of goods sold, and operating expenses look like in the next two years?
    2. How does the percentage change for sales, cost of goods sold, and operating expenses affect Bradburn’s ability to finance the plant expansion from internally generated funds?

Since the percentage change in the next two years will remain the same, they will be 11.11% for sales, 7.37% for cost of goods sold, and 10.26% for operating expenses. However, this will not mean the income levels will remain unchanged. The income level and the company’s ability to finance the plant expansion using internally generated funds will have increased. There will be less need for borrowed financing.

  1. Explain whether Topeka National Bank should grant the extension based on Bradburn’s notes, considering Daniel Brown’s statement about financing the plant expansion through internally generated funds. Consider the following question to guide your response:
    1. Should Topeka National Bank grant the loan? Why or why not?
    2. Will Bradburn’s projected operations for 2027 generate adequate cash to finance the plant expansion and repay the loan?
    3. Does Bradburn need the 24-month extension? Why or why not?
    4. What do the financial ratios indicate about Bradburn’s financial structure?

Topeka National Bank should grant the loan after considering Bradburn statements. This is so because a positive trend is observed in the firm’s financial position. An extension for 24 months will allow Bradburn to operate under less pressure. Therefore, the extension should be granted. Additionally, the extension is necessary to ensure the firm does not face liquidity problems due to cash shortage. According to Hutabarat et al. (2023), the current ratio can drop significantly if cash is used to meet debt obligations, leading the organization to financial difficulties. The ratio shows the company’s financial structure, and the ratios have demonstrated the company’s sound financial standing. Even after allocating the necessary funds for equipment, the company still has enough cash to pay the notes by the end of the year. Additionally, the current ratio indicates that the extension can be approved.

References

Hutabarat, M. I., Silalahi, H., Samosir, H. E. S., Siregar, M. R., & Damanik, H. M. (2023). Analysis of current ratio return on asset and debt to equity ratio on dividend payout ratio. Enrichment: Journal of Management, 13(2), 1552-1559.

Olayinka, A. A. (2022). Financial statement analysis as a tool for investment decisions and assessment of companies’ performance. International Journal of Financial, Accounting, and Management, 4(1), 49-66.

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Question 

Complete this template by replacing the bracketed text with the relevant information.

Calculations

Ratios and Variance Analysis

Ratios and Variance Analysis

  1. Calculate the current ratio for fiscal years 2025 and 2026.

[Insert text.]

  1. Calculate the acid test (quick ratio) for fiscal years 2025 and 2026.

[Insert text.]

  1. Calculate the inventory turnover for the fiscal year 2026.

[Insert text.]

  1. Calculate the return on assets for fiscal years 2025 and 2026. (Assume that total assets were $1,688,500 at 3/31/24.)

[Insert text.]

Percentage Changes

  1. Calculate the percentage change in sales from the fiscal year 2025 to 2026.

[Insert text.]

  1. Calculate the percentage change in cost of goods sold from the fiscal year 2025 to 2026.

[Insert text.]

  1. Calculate the percentage change in gross margin from the fiscal year 2025 to 2026.

[Insert text.]

  1. Calculate the percentage change in net income after taxes from the fiscal year 2025 to 2026.

[Insert text.]

Financial Decisions and Factors

  1. Describe at least one additional financial report or analysis that might be helpful to the commercial loan officer of Topeka National Bank in evaluating Daniel Brown’s request for a time extension on Bradburn’s notes.

[Insert text.]

  1. Explain whether Bradburn’s desire to finance the plant expansion from internally generated funds is realistic. Assume that the percentage changes experienced in fiscal year 2026 as compared with fiscal year 2025 for sales, cost of goods sold, and operating expenses will be repeated in each of the next two years. Consider the following question to guide your response:
    1. What will the percentage changes for sales, cost of goods sold, and operating expenses look like in each of the next two years?
    2. How does the percentage change for sales, cost of goods sold, and operating expenses affect Bradburn’s ability to finance the plant expansion from internally generated funds?
  1. Explain whether Topeka National Bank should grant the extension on Bradburn’s notes considering Daniel Brown’s statement about financing the plant expansion through internally generated funds. Consider the following question to guide your response:
    1. Should Topeka National Bank grant the loan? Why or why not?
    2. Will Bradburn’s projected operations for 2027 generate an adequate amount of cash to finance the plant expansion and repay the loan?
    3. Does Bradburn need the 24-month extension? Why or why not?
    4. What do the financial ratios indicate about Bradburn’s financial structure?

[Insert text.]

References

Include any references used to complete this assignment. This section is for the full citation. Sources should be cited using APA style.