Financial Analysis and Forecast of Sweet Dreams Inc

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Dreams M.I.A. Consulting | Financial Analysis and Forecasting of Sweet Dreams Inc.

Sweet Dream Incorporated (SDI) is a manufacturing company focused on mattress and box spring production for large retailers and hotel chains. With two facilities at their disposal, SDI manufactures over 20 different styles of bedding for their consumers. SDI’s founder and president, Douglas May, has contacted our consulting firm with regards to current financial problems between himself and SDI’s bank, First International Bank. Due to the spike in bank failures in the early 1990’s First National has become extremely sensitive to problem loans (loans which show ratio performances below the industry standard). Unfortunately, SDI has had poor liquidity
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Inv Turn (cost) Inv Turn (sale) FA Turnover TA Turnover DSO
Profitability
Profit Margin Gross PM Return on TA ROE
Other
Altman Z

2) After finding the results of Question one, it is evident that SDI has more weaknesses than strengths as of 1995. If you look at the common size statements, Table 3, it shows that inventory increased as a percentage of sales, which indicates that a smaller percentage is being sold. All current liabilities increased as a percentage of total liabilities, which indicates that SDI is facing more debt. Figure one also clearly shows many of the weaknesses of SDI. Both liquidity ratios are below the industry average. Although the debt ratio appears to be above the industry average, it is actually a weakness because it indicates that SDI has more debt than equity. The only asset management ratio that is above industry average is the fixed asset turnover ratio, the rest are either equal to, or beneath their industry average. However, it’s not all bad; Figure one also shows that SDI has managed to hold a payout ratio on dividends that is 5 percent above the industry average.
3) Based on our analysis of historical data, I do not believe that the bank should lend the requested money to SDI. We believe SDI is unfit for the loan because they are below the industry average in a majority of

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