Presented below is information related to Gonzales Corporation for the month of January 2017. This article will provide a financial analysis of the company’s performance based on its income statement, balance sheet, and statement of cash flows. The article will also highlight some of the key factors that influenced the company’s results and offer some recommendations for improvement.
Income Statement
The income statement summarizes the revenues and expenses of the company for a given period. It shows how much profit or loss the company generated from its operations. The income statement for Gonzales Corporation for January 2017 is shown below:
| Item | Amount |
| Sales revenue | $350,000 |
| Less: Sales discounts | $(8,000) |
| Less: Sales returns and allowances | $(13,000) |
| Net sales | $329,000 |
| Less: Cost of goods sold | $(208,000) |
| Gross profit | $121,000 |
| Less: Operating expenses | $(100,000) |
| Operating income | $21,000 |
| Less: Income taxes (35%) | $(7,350) |
| Net income | $13,650 |
The income statement shows that Gonzales Corporation had a net income of $13,650 in January 2017. This means that the company earned more than it spent during the month. The net income represents a 4.15% return on sales, which is the ratio of net income to net sales. This indicates that the company has a moderate profit margin.
The main sources of revenue for the company were sales of goods and services. The company offered discounts and accepted returns and allowances from its customers, which reduced its net sales by $21,000. The cost of goods sold represents the cost of producing or purchasing the goods that were sold during the month. The gross profit is the difference between net sales and cost of goods sold. It shows how much the company earned from selling its goods before deducting other expenses.
The operating expenses include all the costs that are not directly related to producing or selling the goods, such as salaries and wages, rent, insurance, and delivery. The operating income is the difference between gross profit and operating expenses. It shows how much the company earned from its core operations before paying taxes. The income taxes are calculated based on a 35% tax rate. The net income is the difference between operating income and income taxes. It shows how much the company earned after paying all its obligations.
Balance Sheet
The balance sheet summarizes the assets, liabilities, and shareholders’ equity of the company at a given point in time. It shows what the company owns, what it owes, and what it is worth. The balance sheet for Gonzales Corporation as of January 31, 2017 is shown below:
| Item | Amount |
| Assets | |
| Cash | $3,000 |
| Capital assets | $1,800 |
| Other assets | $11,200 |
| Total assets | $16,000 |
| Liabilities | |
| Current liabilities | $5,600 |
| Notes payable and long-term debt | $3,200 |
| Other liabilities | $200 |
| Total liabilities | $9,000 |
| Shareholders’ equity | |
| Common shares | $300 |
| Retained earnings | $6,700 |
| Total shareholders’ equity | $7,000 |
| Total liabilities and shareholders’ equity | $16,000 |
The balance sheet shows that Gonzales Corporation had total assets of $16,000 as of January 31, 2017. This means that the company had resources worth $16,000 that it could use to generate income or meet its obligations. The assets are classified into three categories: cash, capital assets, and other assets. Cash is the most liquid asset that can be easily converted into other forms of value. Capital assets are long-term assets that are used to produce goods or services, such as machinery, equipment, and buildings. Other assets are any other assets that do not fit into the previous categories, such as inventory, accounts receivable, and prepaid expenses.
The balance sheet also shows that Gonzales Corporation had total liabilities of $9,000 as of January 31, 2017. This means that the company had obligations worth $9,000 that it had to pay or settle in the future. The liabilities are classified into three categories: current liabilities, notes payable and long-term debt, and other liabilities. Current liabilities are obligations that are due within one year or less, such as accounts payable, accrued expenses
