Overview
This assignment focuses on ratios, liabilities, and equity. Remember,
organizations use financial ratios to analyze balances from different
timeframes as well as against competitors. Using these ratios, investors
can gain insight into how the organization is performing.
Scenario
Bradburn Corporation was formed five years ago through a public
subscription of common stock. Daniel Brown, who owns 15% of the common
stock, was one of the organizers of Bradburn and is its current
president. The corporation has been successful, but it currently is
experiencing a shortage of funds. On June 10, 2026, Daniel Brown
approached the Topeka National Bank, asking for a 24-month extension on
two $35,000 notes, which are due on June 30, 2026, and September 30,
2026. Another note of $6,000 is due on March 31, 2027, but he expects no
difficulty in paying this note on its due date. Brown explained that
Bradburn’s cash flow problems are due primarily to the company’s desire
to finance a $300,000 plant expansion over the next two fiscal years
through internally generated funds.
The commercial loan officer of Topeka National Bank requested the
financial reports for the last two fiscal years. Please see the
Supporting Materials section.
Directions
This assignment will use the balance sheet and income statement
provided in the financial statement linked in the Supporting Materials
section. Use the financial statements to address the rubric criteria.
Remember to provide citations for the Financial Decisions and Factors
section.
Specifically, you must address the following rubric criteria:
Calculations
Calculate the current ratio for fiscal years 2025 and 2026.
Calculate the acid test (quick ratio) for fiscal years 2025 and 2026.
Calculate the inventory turnover for the fiscal year 2026.
Calculate the return on assets for fiscal years 2025 and 2026. (Assume that total assets were $1,688,500 at 3/31/24.)
Percentage Changes
Calculate the percentage change in sales from the fiscal year 2025 to 2026.
Calculate the percentage change in cost of goods sold from the fiscal year 2025 to 2026.
Calculate the percentage change in gross margin from the fiscal year 2025 to 2026.
Calculate the percentage change in net income after taxes from the fiscal year 2025 to 2026.
Financial Decisions and Factors
Describe at least one additional financial report or analysis
that might be helpful to the commercial loan officer of Topeka National
Bank in evaluating Daniel Brown’s request for a time extension on
Bradburn’s notes.
Explain whether Bradburn’s desire to finance the plant expansion
from internally generated funds is realistic. Assume that the
percentage changes experienced in fiscal year 2026 as compared with
fiscal year 2025 for sales, cost of goods sold, and operating expenses
will be repeated in each of the next two years (2027 and 2028). Consider
the following questions to guide your response:
What will the percentage changes for sales, cost of goods sold, and operating expenses look like in each of the next two years?
How does the percentage change for sales, cost of goods sold, and
operating expenses affect Bradburn’s ability to finance the plant
expansion from internally generated funds?
Explain whether Topeka National Bank should grant the extension
on Bradburn’s notes considering Daniel Brown’s statement about
financing the plant expansion through internally generated funds.
Consider the following questions to guide your response:
Should Topeka National Bank grant the loan? Why or why not?
Will Bradburn’s projected operations for 2027 generate an adequate
amount of cash to finance the plant expansion and repay the loan?
Does Bradburn need the 24-month extension? Why or why not?
What do the financial ratios indicate about Bradburn’s financial structure?
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