Professional Documents
Culture Documents
Background
History of Organization Main Problems
Reasons
What Next
Butler is having a loan of $70000 to be paid in 10 years . $247,000 loan to Sub-urban National Bank. 2% discount on payment with 10 days invoice.
Personal House*
$72000
Insurance Policy
$70000
$55000
Liquidity Ratio
Formula
1988
1989
1990
1991 Q1
Comments
Current Ratio
1.80x
1.59x
1.45x
1.35x
Quick Ratio
0.88x
0.72x
0.67x
0.54x
Cash Ratio
(Cash)/(Curren t Liabilities)
0.22x
0.13x
0.08x
0.04x
Formula
1988
1989
1990
Comments
(Total Assets Total Equity)/Total Assets (Total Debt)/(Total Equity) Total Assets/ Total Equity EBIT/Interest
55%
59%
63%
Cash Coverage
Number of Days Payable
EBIT+Depreciati on/Interest
Accounts Payable*365/An nual Purchases
3.85x
35 days
3.05x
46 days
2.61x
46 days
Good position helping cash flow
Formula
COGS/Inventory
1988 5.11x
1989 4.42x
1990 4.67x
Comments
Projected sales is increasing inventory on hand Taking longer to turn Inventory
Days Sales Inventory Receivables Turnover Days Sales in A/R Total Asset Turnover Capital Intensity
365 / Inventory turnover Sales/accounts receivable 365/receivables turnover Sales/total assets Total assets/sales
Profitability Ratio
Formula
1988
1989
1990
Comments
Profit Margin
NI/Sales
1.83%
1.69%
1.63%
ROE
NI/Total Equity
11.48%
11.18%
12.64%
ROA
NI/Total Assets
5.22%
4.62%
4.72%
Calculations Projected income statement for 1991 (thousands of dollars) 1991 $ 3,600 $418 $2,736 $3,154 $562 $2,592 $1,008 $900 $108 $42 $53 $97 $21 $76 Value $ 3,600 Assumptions Explanation
Net sales Cost of goods sold: Beginning inventory Purchases Total goods available for sale Ending inventory Total cost of goods sold Gross Profit Operating expenses Operating Profit Purchase Discounts* Interest expense** Net income before income taxes Provision for income taxes Net income
given in case from Ex 1 76% historical - 75% of sales computed value (beg inv + purch end inv) 72% historical % of sales 25% historical % of sales
2% (of purch after Q1) assumption (of average outstanding balance) 10.50% assumption 34% schedule given in footnote 1
Projected balance sheet for December 31, 1991 (thousands of dollars) 1991 Assets: Cash $54 Accounts receivable, net (12% of sales) $432 Inventory $562 Current Assets $1,048 Property, net $216 Total Assets $1,264 Liabilities: Accounts payable Accrued expenses Long-term debt, current portion Bank note payable (plug) Current Liabilities Long-term debt Total Liabilities Net worth Total Liabilities plus net worth
1.50% recent % of sales 12% recent % of sales computed value from above 6% recent % of sales
10 days of purchases 1.50% historical % of sales 7 constant amortization computed plug value computed value computed value
$661
computed value
Increase in sales
1988 1989 1990 1991 (expected) $3500 29.92%
$1697 NA
$2013 18.62%
$2694 33.83%
Company relying heavily on borrowed funds Use the money to pay the accounts payable
Relying on trade credit, 2% 10 days , heavy need of cash What if there is recession?? Although sales are increasing: no plans of hiring manpower. Can lead to inefficiency Day sales A/R ratio decreasing Efforts on inventory management to check on stagnant inventory
Butler Lumber Company was a profitable business Net income growing at slower rate than operating expenses Better inventory management will increase the cash fund and free up the warehouses