Bradburn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Bradburn and is the current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2014, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,000 notes, which are due on June 30, 2015, and September 30, 2015. Another note of $6,000 is due on March 31, 2016, but the company anticipates no difficulty in paying this note on its due date. Brown explained that Bradburn’s cash-flow problems are due primarily to the company’s desire to finance a $300,000 plant expansion over the next 2 fiscal years through internally generated funds.
The commercial loan officer of Topeka National Bank requested the financial reports (balance sheet and income statement) for the last 2 fiscal years. See the Excel template for these reports.
Using this Excel template, provide the following information. Be sure to include formulas for the cells that are labeled formulas. Be sure all amounts are linked to the proper cells:
- Compute the following items for Bradburn Corporation:
- Current ratio for fiscal years 2014 and 2015.
- Acid-test (quick) ratio for fiscal years 2014 and 2015.
- Inventory turnover for fiscal year 2015.
- Return on assets for fiscal years 2014 and 2015. (Assume total assets were $1,688,500 at 3/31/13.)
- Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2014 to 2015.
- Identify and explain what other financial reports and/or financial analyses 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.
- Assume that the percentage changes experienced in fiscal year 2015 as compared with fiscal year 2014 for sales and cost of goods sold will be repeated in each of the next 2 years. Is Bradburn’s desire to finance the plant expansion from internally generated funds realistic? Discuss.
- Should Topeka National Bank grant the extension on Bradburn’s notes considering Daniel Brown’s statement about financing the plant expansion through internally generated funds? Discuss.