Financial Analysis. Motel Enterprises operates and owns many motels throughout the United States. The company has expanded rapidly over the past few years, and company officers are concerned that they may have overexpanded
The following financial statements have been supplied by the controller of Motel Enterprises.
Motel Enterprises Income Statement (in Thousands of Dollars) For the Years Ending October 31, 20X1 and 20X2 (Unaudited)
20X1 20X2
Revenue $1,920 $2,230
Cost and expenses
Direct room and related services $ 350 $ 400
Direct food and beverage 640 470
General and administrative 250 302
Advertising 44 57
Repairs and maintenance 82 106
Interest expense 220 280
Depreciation 95 120
Lease payment 73 100
Total costs and expenses $1,754 $2,105
Income before taxes $ 166 $ 125
Provision for income tax 42 25
Net income $ 124 $ 100
Motel Enterprises Balance Sheet (for Thousands of Dollars) As of October 31, 20X1 and 20X2 (Unaudited)
20X1 20X2
ASSETS
Current assets
Cash $ 125 $ 100
Accounts receivable (net) 200 250
Other 5 5
Total current assets $ 380 $ 415
Long-term assets $ 710 $ 605
Property and equipment
Building and equipment (net) $2,540 $3,350
Land 410 370
Construction in progress 450 150
Total property and equipment $3,400 $3,870
Other assets $ 110 $ 110
Total assets $4,600 $5,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Current liabilities
Accounts payable $30 $ 40
Accrued liabilities 190 190
Notes payable to bank 10 30
Current portion of long-term notes 50 80
Total current liabilities $ 280 $ 340
Long-term debt
Long-term notes $2,325 $2,785
Subordinated debentures 800 800
Total long-term debt $3,125 $3,585
Total liabilities $3,405 $3,925
Stockholders’ equity
Common stock ($1 par) $ 300 $ 300
Paid-in capital in excess of par 730 730
Net unrealized loss on long-term
investments (105)
Retained earnings 165 150
Total stockholders’ equity $1,195 $1,075
Total liabilities and stockholders’ equity $4,600 $5,000
(a) Compute the following ratios for 20X1 and 20X2: (1) debt/equity ratio; (2) times interest earned; (3) return on total assets; (4) current ratio; (5) return on common stock equity; and (6) accounts receivable turnover
(b) Evaluate the financial condition based on the trend analysis. (CMA, adapted.)