Friendly Cards, Inc Essay

3470 Words14 Pages
Friendly Cards, Inc.

Statement of the problem:

Amy McConville, a friend and financial consultant of Wendy Beaumont, the president of Friendly Cards Inc., needs to come up with some suggestions concerning the financing of Friendly's expansion. Amy has been doing research on the firm and money is tight right now. The cost of financing growth right now is high and Friendly Card's is projecting 20% growth in sales next year and even more the following year. The company has never been without financing problems. The business is capital intensive and has had to rely on its good relations with its banks and suppliers to achieve success. Friendly's bankers have begun to feel uneasy about how much the company is relying on debt capital
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I have included the firm's original income statement and balance sheet without the purchase and then with the machine purchase. I have assumed that the firm would use the $218,000 to reduce the bank loans balance for each year. This reduction of the bank loan balance will lower their three restrictive financial ratios.

Originals: Income Statement Actual Data Projected Data 1985 1986 1987 1988 1989 1990
Net Sales $8,055 $12,765 $16,253 $19,500 $23,250 $28,000
Cost of goods sold 5,690 8,785 10,540 12,675 15,112 18,200 65% of proj sales Gross profit on sales $2,365 $3,980 $5,713 $6,825 $8,138 $9,800 35% of proj sales Selling, del....expenses 1,015 1,793 2,373 2,828 3,371 4,060 14.5% of proj sales
General and admin expense 547 945 1,125 1,365 1,628 1,960 7% of proj sales
Total Expenses $1,562 $2,738 $3,498 $4,193 $4,999 $6,020 Profit before int & taxes $ 803 $ 1,242 $ 2,215 $ 2,632 $ 3,139 $ 3,780
Interest 495 605 950 1,075 1,188 1,320
Profit before taxes $ 308 $ 637 $ 1,265 $ 1,557 $ 1,951 $ 2,460
Income taxes 113 225 481 592 742 935 38% of proj PBT
Net Income $195 $412 $784 $965 $1,209 $1,525
Number of shares (000) 534 550 580 580 580 580
Earnings per share $0.37 $0.75 $1.35 $1.66 $2.08 $2.63

Balance

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