The Analysis of Sunland Company's Balance Sheet Data at the End of 2025
Explanation:
a) Financial Ratios: Financial ratios that can be derived from the balance sheet include the following:
- Current ratio: This ratio is calculated by dividing current assets by current liabilities. It measures a company's ability to cover its short-term liabilities with its short-term assets.
- Debt-to-equity ratio: This ratio is calculated by dividing total debt by shareholders' equity. It indicates the proportion of debt used to finance a company's assets relative to the equity.
- Return on assets (ROA): ROA is calculated by dividing net income by average total assets. It shows how profitable a company is relative to its total assets.
- Return on equity (ROE): ROE is calculated by dividing net income by average shareholders' equity. It measures how effectively a company is using its shareholders' equity to generate profits.
b) Trend Analysis: To analyze the trend in Sunland Company's assets, compare the total assets from 2025 to 2024. If the total assets have increased, it indicates growth in the company. Conversely, if the total assets have decreased, it suggests a decline in the company's asset base.
c) Liquidity Position: The liquidity position can be assessed based on the data by calculating the current ratio. A current ratio above 1 indicates good liquidity, suggesting that the company can easily cover its short-term liabilities with its current assets. On the other hand, a current ratio below 1 may indicate poor liquidity and potential difficulties in meeting short-term obligations.
d) Retained Earnings: To determine the retained earnings for 2025, income statement data is required. Retained earnings can be calculated by subtracting dividends paid from the net income of the company. Retained earnings represent the accumulated profits that have not been distributed to shareholders as dividends.
Overall, analyzing the balance sheet data of Sunland Company provides valuable insights into its financial health, performance, and liquidity position, enabling stakeholders to make informed decisions regarding the company's future prospects.