Reference no: EM132075095
Buckner Auto Repair, Inc. Statement of Earnings and Retained Earnings For the Years Ended December 31, 2011 2010 2009
Revenue Sales - Parts 182,706 168,945 162,456 Sales - Labor 107,639 103,232 99,571 Sales - Resale 7,850 6,589 6,712 Sales - Auto 7,800 5,000 22,000 Returns and Allowances (412) (450) (360) Net Sales 305,583 283,316 290,379 Cost of Goods Sold Purchases - Parts 61,347 59,878 58,943 Direct Labor 70,000 67,500 65,000
Shop Supplies 890 834 888 Subcontractors 4,000 3,600 3,000 Autos Purchased 3,500 2,500 7,500 Total Cost of Goods Sold 139,737 134,312 135,331 Gross Profit 165,846 149,004 155,048 Operating Expenses Officer's Salary 60,000 60,000 60,000 Rent 16,000 14,000 13,000 Payroll Taxes 13,000 12,500 12,200 Insurance 6,654 6,277 6,143 Professional Fees 3,600 3,600 3,000 Utilities 2,567 2,378 2,690 Office Equipment Lease 2,400 2,400 1,800 Shop Repairs and Maintenance 1,879 1,109 1,567 Dues and Subscriptions 1,850 1,800 2,000 Telephone 1,453 1,345 1,312
Advertising 1,200 1,150 1,100 Office Expenses 876 768 912 Alarm 300 300 250 Licenses and Permits 120 120 120 Bank Service Charges - 24 30 Total Operating Expenses 111,899 107,771 106,124 Earnings From Operations 53,947 41,233 48,924 Other Expenses Depreciation 5,000 3,000 3,000 Amortization 2,000 2,000 2,000 Interest Expense 2,500 800 650 Total Other Expenses 9,500 5,800 5,650 Earnings Before Taxes 44,447 35,433 43,274 Provision for Income Taxes 13,334 10,630 12,982 Net Earnings 31,113 24,803 30,292 Beginning Retained Earnings 157,881 143,078 122,786 Dividends (10,000) (10,000) (10,000) Ending Retained Earnings 178,994 157,881 143,078
Your friend, Peter Bock, has always loved repairing automobiles. In school he dreamed about being a mechanic and owning his own auto repair business. After high school, he immediately began working for The Auto House, a large, successful independent auto repair business. Ten years later, Peter was living his dream. He had moved up from apprentice to master technician and was a valued member of The Auto House staff. But Peter's dream was not completely fulfilled.
He still wanted to own his own business, and now that might happen. Last week he received a call from Jeffrey Wong, a commercial broker, who told him about Buckner Auto Repair, Inc., a small auto repair shop that was for sale. Peter knew a little about the shop. Bill Buckner had owned it for many years.
Peter felt the shop had a good reputation as evidenced by positive comments from people, whose opinion he valued, in the automotive profession. Since Peter discovered that your group was about to complete a course in financial accounting and analysis he called you for help in evaluating the merits of this potential business acquisition. He has supplied you with the following data and other information:
1. Balance Sheets for 3 Years. (Memo balance sheet for 12/31/08).
2. Income Statements and Statements of Retained Earnings for 3 years.
3. Mr. Buckner has suggested a sales price for the business of $250,000.
Required
1. Using the information provided and any other resources you determine might be useful, evaluate the financial condition of Buckner Auto Repair, Inc. At a minimum you should prepare a statement of cash flows for the most recent three years and prepare any ratio analyses you deem appropriate.
2. Based upon your analyses would you recommend that Peter make this investment?
3. Give your reasons for recommending or not recommending this purchase. If you believe the price is too high, how much do you believe is reasonable? Note in your response any assumptions you make in your work on this case.
4. What other information do you think would be helpful in evaluating this business and arriving at a decision as to whether or not Peter should proceed with this venture?