Oceanview Marine Company 2-2 Preliminary Analytical Procedures — Summary of Ratio Analyses December 31, 2015 Liquidity: Although the liquidity ratios do not indicate there are any serious problem areas, they do reveal some possible warning signs: The current ratio has declined by over 7% during the year. However, it is still above the 2:1 level, which is a sign of good financial condition, and it is above the industry average. They have enough current assets to cover their current liabilities It is taking longer to collect money on accounts. Up by 2.21 days this year while national average went up 18 days. The company is barely improved on turning over inventory from the previous year while the industry has increased significantly. Profitability : • Since the gross profit margin did not jump up by a big percentage that means general, selling, and administrative accounts are not being mishandled. • The return on resources contributed by stockholders has gone up by 42.86%. • The return on resources contributed by stockholders and creditors has also gone up by 50%. • A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenue. • The company is generating more money per assets used by 3.36%. • The company is generating a lot of sales compared to the money it uses to fund the sales. Solvency: The solvency ratios have deteriorated somewhat: Long-term Assets to Owners’ Equity dropped nearly 15%. Shareholder equity ratio has decreased so shareholders will not be making as much. Stockholders’ equity is more than the fixed assets so the stockholders’ equity is financing not only the fixed assets but also a part of the working capital.
Oceanview Marine CompanyStatement of Income and Retained EarningsDecember 31, 2012PBC1-2SalesSales returns and allowances Net sales Cost of sales Gross profit201220112010$26,456,647$22,889,060$20,950,52137,55727,74028,75326,419,09022,861,32020,921,76819,133,29916,530,11415,176,4107,285,7916,331,2065,745,358EXPENSESAccounting and auditing48,25346,75044,610Advertising28,62427,94724,654Depreciation46,41546,57841,538Bad debts148,252162,344147,629Business publications1,231872115Cleaning services15,81712,80911,620Fuel64,16153,56641,593Garbage collection4,8704,6745,650Insurance16,41516,30316,144Interest427,362364,312356,829Legal69,75229,91422,654Licensing and certification fees33,58027,14224,148Linen service3,0441,9392,393Medical benefits4,1784,6244,287Miscellaneous47,73916,63125,430Office supplies26,39023,28921,462Payroll benefits569,110461,214430,688Pension expense40,77037,26318,900Postage and courier8,62320,96222,511Property taxes3,97827,94726,144Rent158,526120,000112,846Repairs and maintenance51,31626,43926,519Salaries and wages4,310,2813,970,0923,703,580Security96,980100,09893,800Telephone5,7077,0928,611Travel and entertainment21,63316,30314,952Utilities63,32941,91940,827Total Expenses6,316,3365,669,0235,290,134Net income before income tax969,455662,183455,224Income tax expense344,605239,406199,631NET INCOME624,850422,777255,593Retained earnings at beginning of year Less: DividendsRetained earnings at end of year6,518,413 6,195,636 6,040,043 100,000100,000100,000 $7,043,263 $6,518,413 $6,195,636The accompanying notes form an integral part of these financial statementsCurrent workpapers — audit planning ♦ Page 2