1) Analysis of Financial Statements
Ski Mountain Inc. demonstrates that they have carried a large amount of debt with low levels of cash and other liquid assets. This is told through the analysis of both the balance sheet and the income statement.
The balance sheet shows that total liabilities have consistently exceeded total assets of the company. When determining the ability for this company to lend and repay its debts, important financial ratios were identified. The debt to equity, current ratio, quick ratio, and working capital ratio were analyzed, and each demonstrate the poor financial health of Ski. Overall, the company has low liquidity and high leverage. The company also demonstrates low solvency, as the assets are not greater than
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to have improving financial health over the four-year period. The company has been able to improve its cost efficiency and increase profitability with a constant revenue stream. Ski may have trouble in controlling its costs, as total operating expenses have increased from 2013 to 2014. However, the expenses are lower than in 2011 and 2012. Also, the interest income has been high each of the four years but has decreased in 2014. It is still relatively high compared to the interest income of $13,000 in the same year. This could demonstrate the company having a significant amount of debt. However, the ratios of gross profit, EBITDA, and net margin demonstrate a positive and healthy financial status.
Overall, there is a high risk for Ski Mountain Inc. to default on its loan. The company has a high amount of debt compared to its assets, negative net worth, and has continually relied on debt to finance growth. While net operating profit and EBITDA have increased over the four-year period, there are still large amounts of interest expense present.
2) Strengths and Weaknesses of
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• Revenue has remained constant.
• Gross profit has similarly stayed constant.
• Operating expenses have decreased since 2011 but increased from 2013 to 2014.
Net Profit has increased from negative amounts in 2011 and 2012 to positive amounts in 2013 and 2014.
• Ski Mountain Inc. has been able to generate more profit than expenses incurred in 2013 and 2014.
Interest expense has remained high in each of the four years but has decreased in 2014.
• This is still large compared to the $13,000 of interest income in the same year.
Gross Profit ratio is over 80% in each year, indicating a high percentage of revenue after accounting for the cost of sales.
• Could also indicate the company is not investing enough in growth or having limited opportunities for expansion.
EBITDA has increased steadily each year, with 1,718 in 2014.
• Shows that the operating earnings are high compared to the debt.
• Indicates a strong ability to generate cash from operations.
Net Profit (margin) ratio has steadily increased from negative amounts in 2011 and 2012 to positive amounts in 2013 and 2014.
• Company has avoided not being able to generate profit after all expenses have been