Bob Builder Construction Company (BBCC) is a large firm for kitchen appliance manufacturers. The consolidated income sta

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Bob Builder Construction Company (BBCC) is a large firm for
kitchen appliance manufacturers. The consolidated income statement
and balance sheet of BBCC are as follows. BBCC Income Statement
(December 31, Year) (thousand dollars) 2018 2019 Sales $40,909
$45,000 Cost of Goods Sold $20,909 $23,000 Gross Profit $20,000
$22,000 Selling and Administrative Expenses $11,818 $13,000
Depreciation Expense $2,000 $3,000 Operating Income (EBIT) $6,182
$6,000 Interest Expense $400 $412 Earnings before Taxes (EBT)
$5,782 $5,588 Income Taxes (@ 40%) $2,313 $2,235 Net Income (NI)
$3,469 $3,353 Dividends Paid (@ 21.86%) $758 $733 BBCC Balance
Sheet (For the Year Ended December 31, Year) (thousand dollars)
2018 2019 Assets: Cash $2,000 $1,800 Accounts Receivable (net)
$6,000 $7,600 Inventory $5,000 $5,220 Plant and Equipment (gross)
$26,000 $31,000 Less: Accumulated Depreciation $10,000 $13,000
Plant and Equipment (net) $16,000 $18,000 Land $1,000 $1,000
Liabilities: Accounts Payable $2,000 $2,600 Notes Payable $3,000
$3,300 Accrued Expenses $3,000 $3,100 Bonds Payable $4,000 $4,000
Stockholders’ Equity: Common Stock $4,000 $4,000 Retained Earnings
$14,000 $16,620 Mr. Person, the finance manager of BBCC, submitted
a justification to support the application for a short-term loan
from the Queensville Interstate Bank (QIB) to finance increased
sales. You are the loan officer at QIB responsible for determining
whether BBCC’s business is strong enough to be able to repay the
loan.
Using the attached Income Statement and Balance Sheet,
accomplish the following: 1) Calculate the following profitability
ratios for 2018 and 2019, compare with the industry averages shown
in parentheses, and indicate if the company is doing better or
worse than the industry and whether the performance is improving or
deteriorating in 2019 as compared to 2018 (The industry average
ratio is provided in parentheses) a) Gross profit margin (50
percent) b) Operating profit margin (15 percent) c) Net profit
margin (8 percent) d) Return on assets (10 percent) e) Return on
equity (20 percent) f) Current ratio (1.5) g) Quick ratio (1.0) h)
Debt to total asset ratio (0.5) i) Times interest earned (25) j)
Average collection period (45 days) k) Inventory turnover (8) l)
Total asset turnover (1.6) 2) Calculate the economic value added
(EVA) and market value added (MVA) for BBCC, assuming that the
firm’s income tax rate is 40 percent, the weighted average rate of
return expected by the suppliers of the firm’s capital is 10
percent, and the market price of the firm’s stock is $20. There are
1.2 million shares outstanding. 3) Discuss the financial strengths
and weaknesses of BBCC based on the financial condition as evident
from the ratio analysis. Which ratios should you analyze more
critically before recommending granting of the loan and what is
your recommendation?