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Sources
Bank borrowing
Trade credit
Retained earnings
Cash
Accrued expenses
$233
$132
$78
$17
$15
Total sources
$475
Inventory
Accounts receivable
Mr. Stark
Long-term debt
Property
$179
$146
$105
$14
$31
Total uses
$475
Uses
16.42%
ommerical customers buy elsewhere if cash purchases are required or no discount is provided ?
financing?
$54
$432
$576
$210
Total Assets
1.50%
12%
16%
of sales
of sales
based on 2003
of sales
based on 2003
growth with sales
$1,272
Liabilities
Bank Loan
Accounts payable
Accrued expenses
Current payment of LTD
LTD
$675
$75
$52
$7
$43
Total Liabilities
$852
$419
10
$1,272
$900
Operating Income
$108
25%
of sales
$42
2%
of new purchases =
$60 10.50% of bank loan
$90
$19 15% on $50K, 25% on next $25K, and 34%
$71 NOT available until the end of the year!
Becomes retained earnings but business is
ased on 2003
ased on 2003
not needed at the end of the year but earlier in the year
365 on purchases WITH discount
agreement
end of 2003
x net income in 2004
vious years
22%
of COGS based on 2002/2003
(other ways)
Not a large difference between purchases and COGS, but this can
change if ending inventory increased (bad sign if inventory is collateral of bank)
15%
next $25K, and 34% after
$7.50
end of the year!
1.98% of sales
ings but business is seasonal (
25%
$6.25
34%
$5.15
teral of bank)
$54
$432
$576
$210
Total Assets
1.50%
12%
16%
of sales
of sales
of sales
growth with sales
$1,272
Liabilities
Bank Loan
Accounts payable
Accrued expenses
Current payment of LTD
LTD
$419
$347
$52
$7
$43
Total Liabilities
$868
$404
46
$1,272
$3,600 Estimate
$418 from first quarter of 2004 (already in stock)
$2,750 solve using inventory and COGS figures
$3,168
$576
$2,592
72%
of sales
$1,008
28%
of sales
$900
Operating Income
$108
25%
of sales
$0
no trade discounts
$39 10.50% of bank loan
$69
$12 15% on $50K, 25% on next $25K, and 34% after
$56 lower net income when trade discounts are forgone
end of 2003
x net income in 2004
04 (already in stock)
nd COGS figures
15%
25%
34%
$7.50
$4.63
$0.00
1.57% lower margin due higher financing cost
$39
AR
Inventory
Sales
2001
$171
$239
$1,697
2002
$222
$326
$2,013
2003
$317
$418
$2,694
AR / Sales
Inventory / Sales
(AR + Inventory) / Sales
10.08%
14.08%
24.16%
11.03%
16.19%
27.22%
11.77%
15.52%
27.28%
36.78
51.41
40.25
59.11
42.95
56.63
AR Days
Inventory Days
Growth
85.38%
74.90%
58.75%
30 days of credit implies
16.77%
10.17%
over 2 years
8.33%
of sales
never materialize).
AP
COGS
AP Days
2001
$124
$1,222
2002
$192
$1,437
2003
$256
$1,950
2004
$243
$522
37.04
48.77
47.92
169.91
first quarter
$98
10
days
take 2% discount
Pay
$100
48
days
Use
$2
38
days
Implied interest
2.04%
21.42%
per period
38
days
per year Basically, 2% per month!
30
2.04%
27.86%
rst quarter
48.34
per period
30
days
Also expensive to offer discount to customers
(assuming they take advantage of the discount and you don't raise prices by 2% before offering disco
2001
$468
$260
2002
$596
$375
2003
$776
$535
first
quarter
2004
$932
$690
Current Ratio
Declining
1.80
1.59
1.45
1.35
Interest
EBIT
$13
$50
$20
$61
$33
$86
$10
$21
3.85
3.05
2.61
2.10
Current Assets
Current Liabilities