martlink Computer Services Co. specializes in customized software development for the broadcast and telecommunications industries. The company was started by three people to develop software primarily for a national network to be used in broadcasting national election results. After sustained and manageable growth for many years, the company has grown very fast over the last three years, doubling in size. This growth has placed the company in a challenging financial position. Within thirty days, Smartlink will need to renew its P300,000 loan with Philippine National Bank. This loan is classified as a current liability on Smartlink’s balance sheet. Steve Heart, president of Smartlink, is concerned about renewing the loan. The bank has requested Smartlink's most recent financial statements which appear below, including balance sheets for this year and last year. The bank has also requested four ratios relating to operating performance and liquidity. Required: Give your analysis based on the following financial ratios for Smartlink Computer Services Co.: This Year Last Year Current Ratio 0.80 1.20 AR Turnover 8.33 Return on Common SHE 35.15% Debt to Equity Ratio 1.05 1.20

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Smartlink Computer Services Co. specializes in customized software development for the broadcast and telecommunications industries. The company was started by three people to develop software primarily for a national network to be used in broadcasting national election results. After sustained and manageable growth for many years, the company has grown very fast over the last three years, doubling in size.

This growth has placed the company in a challenging financial position. Within thirty days, Smartlink will need to renew its P300,000 loan with Philippine National Bank. This loan is classified as a current liability on Smartlink’s balance sheet. Steve Heart, president of Smartlink, is concerned about renewing the loan. The bank has requested Smartlink's most recent financial statements which appear below, including balance sheets for this year and last year. The bank has also requested four ratios relating to operating performance and liquidity.

Required:

Give your analysis based on the following financial ratios for Smartlink Computer Services Co.:

This Year Last Year

Current Ratio 0.80 1.20

AR Turnover 8.33

Return on Common SHE 35.15%

Debt to Equity Ratio 1.05 1.20

Smartlink Computer Services Co.
Bolance Sheets
December 31
(in thousandi)
he Year
Lant rear
Aseh
P50
350
Accounh recelvoble. net.
Other curent oets
Equipment net
Beniture ond fistures. net
Other nonturent met
P50
250
140
800
100
1100
120
240
P1.30
200
P1S0
Total aet
Liabites ond stockholders'eauty
Accounts poyobie
Tarespoyotle
Note payable riippine Notional Bar)
Bondi payobie dveh seven yean
Total liablities
P150
140
P130
120
200
300
850
Copitalstock (1.000 thares
Retanedeing
Totol stockhoiders'equity
Totol liabilties ond stockholder eqvity
100
100
710
140
P1.30

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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