Pacific Grove Meeting Bank 's Requirements

This bank loan helped finance the increase in property and other related assets. The sponaneous assets that were increased as a result of an increase in sales were financed by an increase in sponaneous liabilities. Spontaneous liabilities have grown by 35%, which supports the claim that they finance the increase in accounts receivable and inventories. In the period between 1993-1995, the financial strength of Clarkson Lumber has deteriorated significantly. As seen from the financial ratios excel spreadsheet attached, the current and quick ratios have been gone down substantially. This means that the company’s ability to meet its short term obligations has deteriorated. Furthermore, the return on sales and return on assets have also gone down, which means that their increase in net income has not stayed consistent with the increase in sales and increase in assets to finance these sales. Their falling inventory turnover ratio means that even though their sales are increasing, they are not moving inventory at the same pace they had before. Their low accounts receivable turnover ratio and high dales sales outstanding indicates that there’s a large amount of money tied in this account.

The firm has decided to increase the debt finance component portion from 20% to 30% which is a good decision since the interest payments are 100% tax deductible. The appropriate capital structure would be to

The company has an agreement with a bank that allows the company to borrow the exact amount needed at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company will pay the bank all of the accrued interest on the loan and as much of the loan as possible while still retaining at least $50,000 in cash.

An organization’s current ratio shows how liquid the assets of the agency are by comparison to the short term debts that the agency must pay to continue its operations. This ratio is calculated by taking the assets that can be converted to cash within a year (current assets) and dividing it by the liabilities that are either currently due or will become due within a year (current liabilities). The current ratio, ideally, should be at

Mention each account affected and the appropriate amount. The Reserve account of the company is increased by $ 10,000; cash account of the bank is increase by $ 90,000, while the liability of $

The second task that needed to be finished was to forecast the income statement and the balance sheet for the next two years. We grew sales at a 15% rate, which is the stated rate from Koh. Also, in forecasting the balance sheet, we only showed debt financing for the capital expenditure of the DVD manufacturing equipment, which was the requested structure. Other relevant facts and assumptions for preparing the financial forecast are stated below-

In the case of Assessing a Company’s Future Financial Health, the case concentration is on SciTronics, a medical device company, performance measures based on the organization’s three primary financial data sources in Exhibit 1 & 2. Utilizing the 9 steps of corporate financial system, I will be able to analyze the financial health of the company to assess whether it will remain balance over the ensuing 3-5 years. The measures are grouped by focusing on “Financial Ratios” such as: 1.) profitability measures, 2) activity measures, and 3) leverage and liquidity measures. Using the financial data sources, I would be able to make recommendations regarding SciTronics 126 million loan request.

2. Forecast the firm’s financial statements for 2002 and 2003. What will be the external financing requirements of the firm in those years? Can the firm repay its loan within a reasonable period? In order to forecast the financial statements of 2002 and 2003, the following assumptions need to be made. The growth of sales is 15%, same as 2001, which is estimated by managers. The rate of production costs and expenses per sales is constant to 50%. Administration and selling expenses is the average of last 4 years. The depreciation is $7.8 million per year, which is calculated by $54.6 million divided by 7 years. Tax rate is 24.5%, which is provided. The dividend is $2 million per year only when the company makes profits. Therefore, we assume that there will be no dividend in 2003. Gross PPE will be $27.3 million (54.6/2) per year. We also assume there is no more long term debt, because any funds need in the case are short term debt, it keeps at $18.2 million. According to the forecast, Star River needs external financing approximately $94 million and $107 million in 2002 and 2003, respectively. In order to analysis if the company can repay the debt, we need to know the interest coverage ratio, current ratio and D/E ratio. The interest coverage ratios through the forecast were 1.23 and 0.87 respectively, which is the danger signal to the managers, because in 2003, the profits even not

We have to pay especial attention to the agreement reached with the former Co-owner of the company, Mr. Verden. This agreement is affecting the cash flow of the company since the interest expenses raises by around $12,000.00 more per year, this together the financial interest of the Metropolitan’s Bank loan

The company’s ability to generate profitability might not be constant and subject to a lot of factors.

The company lost money almost every year since its leveraged buyout by Coniston Partners in 1989. The income generated was not sufficient to service the interest expenses of the company which stood at $2.62B in 1996. From Exhibit 1, we can say that interest coverage ratio computed as EBIT / Interest Expense was 1.31 in 1989 and has been decreasing over years and currently stands at 0.59. This raises a question of how the company can meet its interest payments without raising cash or selling assets.

The company’s debt ratios are 54.5% in 1988, 58.69% in 1989, 62.7% in 1990, and 67.37% in 1991. What this means is that the company is increasing its financial risk by taking on more leverage. The company has been taking an extensive amount of purchasing over the past couple of years, which could be the reason as to why net income has not grown much beyond several thousands of dollars. One could argue that the company is trying to expand its inventory to help accumulate future sales. But another problem is that the company’s

The Standard Oil Company of California(Socal) is trying to determine how much to bid on the Gulf Oil Corporation. George Keller, the CEO of Socal, would need to borrow 14 billion dollars in order to make a substantial bid. While banks are willing to lend the money because of Socal's low to debt ratio, the loan would put the company in a highly leveraged position. In order to alleviate that debt, some of Gulf's assets could be sold. Keller has to consider the value of Gulf's exploration and development program when calculating future returns. Two billion dollars were being spent on the exploration and development program. This money could instead be used to reduce the debt if Socal acquired the company. However, the exploration program

The main problem of the company is that it couldn’t liquidate a seasonal working capital loan for the requisite 30 days each year. It reflects the company doesn’t have sufficient cash and they need more loan but the bank is reluctant to give any unless the company can give a reliable financial plan to show they can pay off their loan by the end of 2012. So, Mr Malik came up with a financial forecast for the month to month operation to gain the bank’s trust. Sadly, the forecast portrays it cannot afford to pay off its debt by end of 2012 and would owe a balance of IND 3,858.00. This

Computed: PPE = $6876M / $21,695M = 31.7% Intangible assets = $4041M / $21,695M = 22% Computed: $3,374M / $4,841 = 70% Computed: Accounts payable = $4461M / $13,021M = 34.2% Long-term debt = $2651M / $13,021M = 20.4% Computed: Long-term investments = $8214M / $22,417M = 36.6% Current assets = $7171M / $22,417M = 32%