Contemporary Wood Furniture Comparative Balance Sheet As of December 31
| 2010 | 2011 | Change |
|---|---|---|
| Current Assets | $29,649 | $23,279 |
| Cash | $3,278 | $1,844 |
| Accounts Receivable | $6,954 | $11,807 |
| Inventory | $17,417 | $9,628 |
| Plant and Equipment | $144,500 | $158,700 |
| Total Assets | $174,149 | $182,979 |
| Current Liabilities | $13,010 | $18,220 |
| Accounts Payable | $9,250 | $13,446 |
| Wages Payable | $1,110 | $650 |
| Property and Taxes Payable | $3,650 | $4,124 |
| Long-term Debt | $75,800 | $92,800 |
| Owner’s Equity | $82,339 | $70,959 |
| Total Liabilities and Equity | $174,149 | $182,979 |
Horizontal Analysis:
- Current assets decreased by 21.2%
- Cash decreased by 43.5%
- Accounts receivable increased by 69.6%
- Inventory decreased by 44.7%
- Plant and equipment increased by 9.7%
- Current liabilities increased by 40.2%
- Accounts payable increased by 45.5%
- Wages payable decreased by 41.2%
- Property and taxes payable increased by 13.1%
- Long-term debt increased by 22.1%
- Owner’s equity decreased by 13.7%
Current Ratio 2010: $29,649 / $13,010 = 2.28 Current Ratio 2011: $23,279 / $18,220 = 1.28
Total debt to total assets ratio 2010: ($13,010 + $75,800) / $174,149 = 0.58 Total debt to total assets ratio 2011: ($18,220 + $92,800) / $182,979 = 0.58
- Overall, the analysis shows that the business has seen a decrease in current assets and an increase in current liabilities. The cash balance has decreased significantly, and the inventory has also decreased. Accounts receivable has increased. Plant and equipment has increased slightly. The current ratio for 2011 is lower than the 2010 ratio, which means that the business might have difficulty paying off its current liabilities. The total debt to total assets ratio has remained the same, which indicates that the level of debt has stayed consistent. Charles is correct to be concerned about these numbers as they indicate that the business may be facing liquidity issues in the short-term. It would be beneficial for Charles to investigate further and determine the reasons for these changes in the balance sheet.
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