Essay about Capstan Autos

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Introduction Capstan Autos operates an East Coast dealership for a major Japanese car manufacturer. Capstan's owner, Sidney Capstan, attributed much of the business's success to it's competitive pricing policy and immediate cash payment. The cars are imported at the beginning of each quarter and paid the manufacturer at the end of the quarter. The revenue from the sales are used to pay the manufacturer and the expenses of running the business. During this time the company had offered a new policy of six months free credit and it was proving that sufficiently popular that Sidney Capstan decided to maintain the policy. In the third quarter of 2010 sales had recovered to 225 units; by the fourth quarter they were 250 units; and by the…show more content…
In this particular report, the bank will be to explain why they are unable to extend them credit. The company could very possibly be in trouble. They have most of their money is locked up in the six month free credit that they were offering. They have more debt then they have assets. The total debt ratio by the end of the first quarter was .88. This means that they are financed 88% with debt and 22% is equity. From the 2009 balance sheet one will notice that the current ratio (current assets/current liabilities = 4510/4730) = 0.95. This says that Verizon has $.95 in current assets for every $1 in current liabilities. (Brealey, Myers, & Marcus, 2007). Rapid decreases in the current ratio sometimes signify trouble. Although in 2011, the current ratio does improve to 1.05 but that really isn't that significant. It appears that the company has been unable to utilize the borrowed funds from the bank and at the same time interest has gone up to 178; the bank loan at 9731 is too high. The receivables have gone up from 0 in 2009 to $10,500 in 2011 as well as Cost of goods sold has gone up as well. There really has been no appreciable change in the financials position despite cut wages. The company's profits were increasing but that the same time expenses and funds appear to have been blocked in the six month free credit extended by the company to the customers and the bank loan has also gone up considerably. (Brealey, Myers, & Marcus, 2007).
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