2. Scenario
A real estate company is trying to determine its financial health based on its performance in
2017. The balance sheet and income statement were provided and the financial analyst needs to
break down the data to extract a conclusion about this company.
3. Quarterly Profit and Loss for 2017 Income
and Cost of Goods Sold
Real Estate Company, Inc.
Quarterly Profit and Loss Summary
January 1 - December 31, 2017
Jan 1 - Mar 31, 2017 Apr 1 - Jun 31, 2017 Jul 1 - Sep 31, 2017 Oct 1 - Dec 31, 2017 Total
Income
Home Sales $ 750,433.00 $ 658,750.12 $ 350,897.55 $ 431,603.99 $ 2,191,684.66
Rental Sales $ 37,739.48 $ 31,739.48 $ 25,739.48 $ 31,659.56 $ 126,878.00
Other Sales $ 13,104.72 $ 17,019.74 $ 161,518.00 $ 198,667.14 $ 390,309.60
Total Income $ 801,277.20 $ 707,509.34 $ 538,155.03 $ 661,930.69 $ 2,708,872.26
Cost of Sales
Uncategorized Expense $ 786,519.96 $ 183,443.29 $ 12,060.00 $ 14,833.80 $ 996,857.05
Repairs & Maintenance $ 540.93 $ 2,127.34 $ 17,361.79 $ 21,355.00 $ 41,385.06
Inspection Fees $ 43,754.00 $ 13,325.00 $ 55,028.10 $ 67,684.56 $ 179,791.66
Insurance $ 29,381.00 $ 8,418.70 $ 51,097.15 $ 62,849.49 $ 151,746.34
Cleaning $ 25,175.00 $ 1,299.00 $ 40,192.35 $ 49,436.59 $ 116,102.94
Contract Fees $ 7,250.00 $ 31,056.00 $ 27,200.00 $ 33,456.00 $ 98,962.00
Total Cost of Sales $ 892,620.89 $ 239,669.33 $ 202,939.39 $ 249,615.45 $ 1,584,845.06
Gross Profit $ (91,343.69) $ 467,840.01 $ 335,215.64 $ 412,315.24 $ 1,124,027.20
5. Simplified 2017 Income Statement
Real Estate Company, Inc.
Quarterly Profit and Loss Summary
January 1 - December 31, 2017
Jan 1 - Mar 31, 2017 Apr 1 - Jun 31, 2017 Jul 1 - Sep 31, 2017 Oct 1 - Dec 31, 2017 Total
Total Income $ 801,277.20 $ 707,509.34 $ 538,155.03 $ 661,930.69 $ 2,708,872.26
Total Cost of Sales $ 892,620.89 $ 239,669.33 $ 202,939.39 $ 249,615.45 $ 1,584,845.06
Gross Profit $ (91,343.69) $ 467,840.01 $ 335,215.64 $ 412,315.24 $ 1,124,027.20
Total Expenses $ 310,150.02 $ 338,266.12 $ 394,826.91 $ 485,364.38 $ 1,528,607.43
Net Operating Income $ (308,563.83) $ (336,828.68) $ (386,142.44) $ (474,682.48) $(1,506,217.43)
Net Income $ (308,563.83) $ (336,828.68) $ (386,142.44) $ (474,682.48) $(1,506,217.43)
6. Quarterly 2017 Balance Sheet
Real Estate Company, Inc.
Balance Sheet
January 1 - December 31, 2017
Jan 1 - Mar 31, 2017 Apr 1 - Jun 31, 2017 Jul 1 - Sep 31, 2017 Oct 1 - Dec 31, 2017
ASSETS
Current Assets
Bank Accounts $ 714,921.28 $ 838,855.92 $ 355,497.12 $ 406,005.08
Home Inventory $ 1,401,633.58 $ 330,291.01 $ 5,256,628.39 $ 5,207,908.00
Other Current Assets $ 11,266,848.18 $ 11,147,810.11 $ 11,695,180.93 $ 11,689,767.56
Total Current Assets $ 13,383,403.04 $ 12,316,957.04 $ 17,307,306.44 $ 17,303,680.64
Fixed Assets $ 186,936.64 $ 197,620.96 $ 338,675.24 $ 338,675.24
TOTALASSETS $ 13,570,339.68 $ 12,514,578.00 $ 17,645,981.68 $ 17,642,355.88
LIABILITIES AND EQUITY
Liabilities
Current Liabilities
Credit Cards $ 65,004.84 $ (8,485.56) $ (14,797.88) $ (14,797.88)
Accounts Payable $ 3,800.00 $ 3,800.00 $ 3,800.00 $ 3,800.00
Other Current Liabilities $ 7,335,896.69 $ 8,513,280.77 $ 11,750,657.31 $ 12,832,192.24
Total Current Liabilities $ 7,404,701.53 $ 8,508,595.21 $ 11,739,659.43 $ 12,821,194.36
Long-Term Liabilities $ 3,567,131.86 $ 1,277,577.74 $ 3,237,528.47 $ 2,225,416.88
Total Liabilities $ 10,971,833.39 $ 9,786,172.95 $ 14,977,187.90 $ 15,046,611.24
Equity $ 2,598,506.29 $ 2,728,080.18 $ 2,668,468.91 $ 2,595,419.77
TOTAL LIABILITIES AND EQUITY $ 13,570,339.68 $ 12,514,253.13 $ 17,645,656.81 $ 17,642,031.01
7. Common Ratios: Income and COGS
Real Estate Company, Inc.
Quarterly Profit and Loss Ratios
January 1 - December 31, 2017
Jan 1 - Mar 31, 2017 Apr 1 - Jun 31, 2017 Jul 1 - Sep 31, 2017 Oct 1 - Dec 31, 2017 Total
Income
Home Sales 93.65% 93.11% 65.20% 65.20% 80.91%
Rental Sales 4.71% 4.49% 4.78% 4.78% 4.68%
Other Sales 1.64% 2.41% 30.01% 30.01% 14.41%
Total Income 100.00% 100.00% 100.00% 100.00% 100.00%
Cost of Sales
Uncategorized Expense 98.16% 25.93% 2.24% 2.24% 36.80%
Repairs & Maintenance 0.07% 0.30% 3.23% 3.23% 1.53%
Inspection Fees 5.46% 1.88% 10.23% 10.23% 6.64%
Insurance 3.67% 1.19% 9.49% 9.49% 5.60%
Cleaning 3.14% 0.18% 7.47% 7.47% 4.29%
Contract Fees 0.90% 4.39% 5.05% 5.05% 3.65%
Total Cost of Sales 111.40% 33.88% 37.71% 37.71% 58.51%
Gross Profit -11.40% 66.12% 62.29% 62.29% 41.49%
8. Common Ratios: Expenses
Real Estate Company, Inc.
Quarterly Profit and Loss Ratios
January 1 - December 31, 2017
Jan 1 - Mar 31, 2017 Apr 1 - Jun 31, 2017 Jul 1 - Sep 31, 2017 Oct 1 - Dec 31, 2017 Total
Expenses
Advertising & Marketing 2.83% 0.37% 3.68% 3.68% 2.56%
Auto Exp 0.15% 0.11% 0.01% 0.01% 0.08%
Bank Charges & Fees 0.09% 0.25% 0.71% 0.71% 0.41%
Payroll Expenses 33.91% 45.47% 53.27% 53.27% 45.51%
Dues and Subs 0.24% 0.03% 1.63% 1.63% 0.80%
Interest Paid 0.62% 0.76% 10.22% 10.22% 4.91%
Meals & Entertainment 0.05% 0.05% 0.06% 0.06% 0.05%
Office Supplies 0.04% 0.17% 1.06% 1.06% 0.53%
Software 0.00% 0.04% 0.58% 0.58% 0.27%
Taxes & Licenses 0.26% 0.06% 0.17% 0.17% 0.17%
Telephone 0.04% 0.04% 0.06% 0.06% 0.05%
Travel 0.14% 0.11% 0.08% 0.08% 0.10%
Utilities 0.20% 0.20% 1.61% 1.61% 0.83%
Depreciation 0.15% 0.17% 0.22% 0.18% 0.18%
Total Expenses 38.71% 47.81% 73.37% 73.33% 56.43%
9. Common Ratios: Simplified Income
Statement
Real Estate Company, Inc.
Quarterly Profit and Loss Ratios
January 1 - December 31, 2017
Jan 1 - Mar 31, 2017 Apr 1 - Jun 31, 2017 Jul 1 - Sep 31, 2017 Oct 1 - Dec 31, 2017 Total
Total Income 100.00% 100.00% 100.00% 100.00% 100.00%
Total Cost of Sales 111.40% 33.88% 37.71% 37.71% 58.51%
Gross Profit -11.40% 66.12% 62.29% 62.29% 41.49%
Total Expenses 38.71% 47.81% 73.37% 73.33% 56.43%
Net Operating Income 50.11% 18.31% 11.08% 11.04% 14.94%
Net Income 50.11% 18.31% 11.08% 11.04% 14.94%
10. Ratio Checkups
Real Estate Company, Inc.
Quarterly Profit and Loss Ratios
January 1 - December 31, 2017
Jan 1 - Mar 31, 2017 Apr 1 - Jun 31, 2017 Jul 1 - Sep 31, 2017 Oct 1 - Dec 31, 2017
Total
Gross Profit Margin 11.40% 66.12% 62.29% 62.29% 41.49%
Net Profit Margin 50.11% 18.31% 11.08% 11.04% 14.94%
Current Ratio 1.81 1.45 1.47 1.35
Debt-to-Worth Ratio 4.22 3.59 5.61 5.80
Working Capital $ 5,978,702 $ 3,808,362 $ 5,567,647 $ 4,482,486
Net Sales to Working Capital 0.134 0.186 0.097 0.148
Return on Total Assets 0.03 0.01 0.00 0.00
Sales/Total Assets 0.06 0.06 0.03 0.04
Equity/Debt 0.24 0.28 0.18 0.17
Working Capital/Total Assets 0.44 0.30 0.32 0.25
*Red denotes a negative value
11. Ratio Checkup Notes
Ratio Notes
Gross Profit Margin Improved drastically in Q2, with a slip dip in Q3 and Q4. Company looks good here.
Net Profit Margin Expenses have increased every quarter. Company needs to reevaluate some of it's expenses.
Current Ratio Company appears to liquid in the event that it needs to pay short term obligations.
Debt-to-Worth Ratio Company needs to evaluate how much of its funds it's receiving from its lenders relative to ownership.
Working Capital Company appears to be in good hands in the event that it needs to settle a dispute give it's large amounts of working
Net Sales to Working Capital
It appears that the company isn't doing the best job of allocating it's working capital to increase sales on a quarter by
basis.
Return on Total Assets Company doesn't appear to be using it's assets effectively to generate earnings.
Sales/Total Assets Company doesn't appear to be very profitable.
Equity/Debt Ownership finances only a small portion of the company.
Working Capital/Total Assets Current liabilities appear to be increasing quarter to quarter. Company appears to be heading towards a state of less
12. Ratio Conclusions
These ratios may be a concern for many companies; however, we must recall that most of this
company's revenue comes from the sale of homes. While property sales were high during the
first quarter, a lot of the revenue generated from the sale of property was offset by a high
uncategorized expense. It appears that the company stabilized it's uncategorized expense for the
second, third and fourth quarter; however, it didn't perform well with respect to home sales in Q3
and Q4. In short the company should focus heavily on trying to sale more homes in the coming
quarters.
13. Graphs
y = 100788x3 - 712814x2 + 1E+06x + 21217
R² = 1
$-
$100,000.00
$200,000.00
$300,000.00
$400,000.00
$500,000.00
$600,000.00
$700,000.00
$800,000.00
$900,000.00
Q1 Q2 Q3 Q4
Sales by Quarter 2017
Home Sales Rental Sales Other Sales Total Income Poly. ( Home Sales)
14. Graphs
y = -88803x3 + 840926x2 - 3E+06x + 3E+06
R² = 1
$-
$100,000.00
$200,000.00
$300,000.00
$400,000.00
$500,000.00
$600,000.00
$700,000.00
$800,000.00
$900,000.00
$1,000,000.00
Q1 Q2 Q3 Q4
Expenses by Quarter 2017
Cost of Sales Uncategorized Expense Repairs & Maintenance Inspection Fees Insurance
Cleaning Contract Fees Total Cost of Sales Poly. (Total Cost of Sales)
15. Conclusions
Total income appears to have a symmetrical correlation with home sales. Thus further reinforcing
that we should focus more on home sales relative to our other sales sources.
Total cost of sales appears to have an almost symmetrical correlation with uncategorized
expense. The company has done a splendid job of reducing the expenses associated with
uncategorized expenses over the quarters.
