Balance Sheet
2015
2016
2017
Assets
Cash
807,000
628,000
612,000
Accounts Receivables
2,582,000
2,896,000
4,605,000
Inventories
2,870,000
5,181,000
7,319,000
Total Current Assets
6,259,000
8,705,000
12,536,000
Net Fixed Assets
2,216,000
2,423,000
5,538,000
Total Assets
8,475,000
11,128,000
15,074,000
Liabilities and Equity
Accounts Payable
961,000
1,648,000
3,137,000
Notes Payable
400,000
800,000
2,860,000
Accruals
440,000
800,000
1,150,000
Total Current Liabilities
1,801,000
3,248,000
7,147,000
Long Term Debt
1,350,000
1,908,000
1,867,000
Common Stock
3,650,000
3,650,000
3,650,000
Retained Earnings
1,674,000
2,322,000
2,410,000
Total Equity
5,324,000
5,972,000
6,060,000
Total Liabilities and Equity
8,475,000
11,128,000
15,074,000
Income Statement
2015
2016
2017
Sales
26,820,000
28,966,000
30,703,000
Cost of Sales
21,216,000
23,550,000
26,140,000
Gross Profit
5,604,000
5,416,000
4,563,000
Operating Expenses
2,574,000
3,225,000
3,866,000
Operating Profit
3,030,000
2,191,000
697,000
Interest
91,000
275,000
469,000
Earnings Before Taxes
2,939,000
1,916,000
228,000
Taxes (48%)
1,411,000
919,000
110,000
Net Income
1,528,000
997,000
118,000
Liquidity
2015
2016
2017
Average
Current Ratio
3.475
2.68
1.754
2.5x
Quick Ratio
1.882
1.085
0.73
1.0x
Asset Management
Average Collection Period
35.139
36.492
54.745
32.0 (days)
Inventory Turnover
7.392
4.545
3.572
7.0x Fixed
Asset Turnover
3.165
2.603
2.037
12
Debt Management
Total Debt to Total Assets
0.372
0.463
0.598
50.00%
Times Interest Earned
33.297
7.967
1.486
7.7x
Profitability
Profit Margin
0.057
0.034
0.004
2.90%
Return on Equity (ROE)
0.287
0.167
0.019
17.50%
ABC Company, a toy manufacturer, believes the coming holiday season (between Thanksgiving in late November and Christmas on the 25thof December) will be a very good one, expecting an increase of 20% in its sales. Outside economic analysts believe the effects of the recent recession are over. Consumer confidence is high. To meet that 20% increase, however, inventories must be built up so, to finance that expansion, ABC wants to borrow $1,000,000 from its bank.
You are the loan officer who must make the decision as to whether or not to give ABC the money. You are going to prepare ratios for 3 years, the Cash Conversion Cycle for the same period and operating cash flow for the years for which you have figures.
Review the Balance Sheets and Income Statements for ABC over the 3 years and answer the following questions (20 points each).
3) Operating Cash Flow is the first of the 3 parts to the Statement of Cash Flows.
a) Define operating cash flow. What does it tell us?
b) Calculate ABCâs operating cash flows for those years for which figures are available.
c) Does your analysis of ABCâs operating cash flows change your conclusions listed in 1) and 2) above?
4) Do you believe ABCâs cash position and its management of cash needs improvement? If so, how would you recommend they do it?
Answer Questions in Bold!
| Balance Sheet | 2015 | 2016 | 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash | 807,000 | 628,000 | 612,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts Receivables | 2,582,000 | 2,896,000 | 4,605,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories | 2,870,000 | 5,181,000 | 7,319,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Current Assets | 6,259,000 | 8,705,000 | 12,536,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Fixed Assets | 2,216,000 | 2,423,000 | 5,538,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Assets | 8,475,000 | 11,128,000 | 15,074,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities and Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts Payable | 961,000 | 1,648,000 | 3,137,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Payable | 400,000 | 800,000 | 2,860,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accruals | 440,000 | 800,000 | 1,150,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Current Liabilities | 1,801,000 | 3,248,000 | 7,147,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long Term Debt | 1,350,000 | 1,908,000 | 1,867,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | 3,650,000 | 3,650,000 | 3,650,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retained Earnings | 1,674,000 | 2,322,000 | 2,410,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Equity | 5,324,000 | 5,972,000 | 6,060,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Liabilities and Equity | 8,475,000 | 11,128,000 | 15,074,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Statement | 2015 | 2016 | 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales | 26,820,000 | 28,966,000 | 30,703,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of Sales | 21,216,000 | 23,550,000 | 26,140,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Profit | 5,604,000 | 5,416,000 | 4,563,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating Expenses | 2,574,000 | 3,225,000 | 3,866,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating Profit | 3,030,000 | 2,191,000 | 697,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest | 91,000 | 275,000 | 469,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Before Taxes | 2,939,000 | 1,916,000 | 228,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Taxes (48%) | 1,411,000 | 919,000 | 110,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Income | 1,528,000 | 997,000 | 118,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ABC Company, a toy manufacturer, believes the coming holiday season (between Thanksgiving in late November and Christmas on the 25thof December) will be a very good one, expecting an increase of 20% in its sales. Outside economic analysts believe the effects of the recent recession are over. Consumer confidence is high. To meet that 20% increase, however, inventories must be built up so, to finance that expansion, ABC wants to borrow $1,000,000 from its bank.
You are the loan officer who must make the decision as to whether or not to give ABC the money. You are going to prepare ratios for 3 years, the Cash Conversion Cycle for the same period and operating cash flow for the years for which you have figures.
Review the Balance Sheets and Income Statements for ABC over the 3 years and answer the following questions (20 points each).
3) Operating Cash Flow is the first of the 3 parts to the Statement of Cash Flows.
a) Define operating cash flow. What does it tell us?
b) Calculate ABCâs operating cash flows for those years for which figures are available.
c) Does your analysis of ABCâs operating cash flows change your conclusions listed in 1) and 2) above?
4) Do you believe ABCâs cash position and its management of cash needs improvement? If so, how would you recommend they do it?
Answer Questions in Bold!
