SITUATION
The following financial statements are for the Cherokee communications corporation , the company provides pay phone service at many of the small convenience stores in the southwestern unilted states primary in texas and new mexico the business was meeting plan until 2007 when a problem developed
| BALANCE SHEET |
|
|
2006
|
2007
|
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$ 668,778
|
$ 592,491
|
|
Accounts receivable
|
4,453,192
|
3,888,621
|
|
Inventories
|
137,036
|
112,699
|
|
Prepaid expenses and other current assets
|
411,990
|
407,274
|
|
Total current assets
|
$ 5,670,996
|
$ 5,001,085
|
|
Fixed assets:
|
|
|
|
Property, plant and equipment (net)
|
$12,935,453
|
$16,466,001
|
|
Site licenses
|
1,941,467
|
3,771,571
|
|
Investments in affiliates
|
164,549
|
251,672
|
|
Total fixed assets
|
$15,041,469
|
$20,489,244
|
|
Other assets
|
681,754
|
455,488
|
|
TOTAL ASSETS
|
$21,394,219
|
$25,945,817
|
|
DEBT (LIABILITIES) AND EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Notes payable
|
$ 2,151,371
|
S 3,320,197
|
|
Current portion of capital lease
|
1,094,381
|
668,826
|
|
Accounts payable
|
310,358
|
835,384
|
|
Accrued expenses
|
2,971,935
|
3,036,633
|
|
Income taxes payable
|
256,140
|
475,945
|
|
Total current liabilities
|
$ 6,784,185
|
S 8,336,985
|
|
Long-term liabilities:
|
|
|
|
Notes payable
|
$ 6,605,835
|
$10,030,963
|
|
Capital lease obligations
|
780,593
|
56,219
|
|
Deferred income taxes
|
342,359
|
306,021
|
|
Total long-term liabilities
|
$ 7,728,787
|
$10,393,203
|
|
Preferred stock
|
$ 2,400,000
|
$ 2,400,000
|
|
Common stockholders' equity:
|
|
|
|
Common stock
|
$ 1,438,903
|
$ 1,438,903
|
|
Additional paid-in capital
|
10,630
|
10,630
|
|
Retained earnings
|
3,031,714
|
3,366,096
|
|
Total ownership equity
|
$ 4,481,247
|
$ 4,815,629
|
|
TOTAL DEBT AND EQUITY
|
$21,394,219
|
525,945,817
|
|
Income Statements
|
|
|
2006
|
2007
|
|
Sales revenue
|
$31,591,640
|
$34,910,951
|
|
Operating expenses:
|
|
|
|
Telephone charges
|
$ 7,851,842
|
$ 9,078,851
|
|
Commissions
|
4,909,445
|
5,627,288
|
|
Telecommunications fees
|
1,821,930
|
1,519,095
|
|
Depreciation
|
4,298,090
|
5,353,797
|
|
Field personnel
|
2,016,935
|
2,988,456
|
|
Chargebacks
|
1,104,896
|
1,111,857
|
|
General and administrative
expenses
|
5,520,405
|
6,435,919
|
|
Total operating
expenses
|
$27,523,543
|
$ 32,115,263
|
|
Operating Income
|
$ 4,068,097
|
$ 2,795,688
|
|
Interest expense
|
|
|
|
Other income
|
|
|
|
(expenses)
|
($1,631,416)
|
($1,816,222)
|
|
Interest income
|
57,278
|
5,069
|
|
Losses on affiliates
|
(34,608)
|
(108,556)
|
|
Unusual gains
|
1,160,238
|
27,234
|
|
Total other income
|
|
|
|
(expenses)
|
($448,508)
|
($1,892,475)
|
|
Income before taxes
|
$ 3,619,589
|
$ 903,213
|
|
Income taxes
|
1,399,140
|
424,831
|
|
Net income
|
$ 2,220,449
|
S 478,382
|
Question 1 : Using financial ratios, compare the firm's financial performance for 2006 and 2007.
Question 2 : What do you think might have happened from 2006 to 2007?