118,000 17.50% ABC Company, a toy manufacturer, believes the coming holiday seas
ID: 2553882 • Letter: 1
Question
118,000
17.50%
ABC Company, a toy manufacturer, believes the coming holiday season (between
Thanksgiving in late November and Christmas on the 25th of 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
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 ABC’s operating cash flows for those years for which figures are available.
c) Does your analysis of ABC’s operating cash flows change your conclusions listed in 1) and 2) above?
Financial Analysis Project – ABC Company 2015 2016 2017 Balance Sheet Assets Cash 807,000 628,000 612,000 Accounts Receivable 2,682,000 2,896,000 4,605,000 Inventories 2,970,000 5,181,000 7,319,000 Total Current Assets 6,459,000 8,705,000 12,536,000 Net Fixed Assets 2,316,000 2,423,000 2,538,000 Total Assets 8,775,000 11,128,000 15,074,000 Liabilities and Equity Accounts Payable 1,061,000 1,648,000 3.137,000 Notes Payable 500,000 800,000 2,860,000 Accruals 540,000 800,000 1,150,000 Total Current Liabilities 2,101,000 3,248,000 7,147,000 Long Term Debt 1,450,000 1,908,000 1,867,000 Common Stock 3,650,000 3,650,000 3,650,000 Retained Earnings 1,574,000 2,322,000 2,410,000 Total Equity 5,224,000 5,972,000 6,060,000 Total Liabilities & Equity 8,775,000 11,128,000 15,074,000 Income Statement 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 1,528,000 997,000118,000
Explanation / Answer
1.A
749000
2.B
3. working notes
4.
13101000
C.As per my opinion ABC company is running in a very good condition it's financial ratio & cash flows showing very strong business position.
ABC co. is running very well in all financial ratio too. with compare to industry average ratio they are in strong position.
As a loan A/c officer I would suggest that we should provide loan to ABC co.
Operating Cash Flow Particular 2015 2016 2017 Net Income 1528000 997000 118000 Add/(Less)-Change In working capital 1.Increase Accounts Receivable 0 -214000 -1709000 2.Increase Inventories 0 -2211000 -2138000 3.Increase Accounts Payable 0 587000 1489000 4.Increase Notes Payable 0 300000 2060000 5.Increase Accruals 0 260000 350000 Operating Profit after Interest & Taxes 1528000 -281000 170000 Add-Interest 91000 275000 469000 Add-Taxes 1411000 919000 110000 Operating Profit before Interest & Taxes 3030000 913000749000
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