# Analysis of Financial statement - Accounts Financial Statement Analysis

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```					              Sub: Accounts                                             Topic: Financial statement analysis

Question:
Analyzing financial statement using ratio analysis.

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Springfield Bank is evaluating Creek Enterprises, which has requested a \$4,000,000 loan, to
assess the firm’s financial leverage and financial risk. On the basis of the debt ratios for Creek,
along with the industry averages and Creek’s recent financial statements (on the facing page),
evaluate and recommend appropriate action on the loan request.

Creek Enterprises
Income Statement for the Year Ended
December 31, 2006

Sales revenue                                                                                  \$30,000,000

Less: Cost of goods sold                                                                        21,000,000

Gross profits                                                                                   \$ 9,000,000

Less: Operating expenses

Selling expense                                       \$3,000,000

expenses

Lease expense                                           200,000

Depreciation expense                                   1,000,000

Total operating expense                                                               6,000,000

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Sub: Accounts                                             Topic: Financial statement analysis

Creek Enterprises
Income Statement for the Year Ended
December 31, 2006

Operating profits                                                                                    \$
3,000,000

Less: Interest expense                                                                            1,000,000

Net profits before taxes                                                                         \$
2,000,000

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Description: Appropriate action on loan request : Springfield Bank is evaluating Creek Enterprises, which has requested a \$4,000,000 loan, to assess the firm’s financial leverage and financial risk. On the basis of the debt ratios for Creek, along with the industry averages and Creek’s recent financial statements (on the facing page), evaluate and recommend appropriate action on the loan request.
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