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Case Analysis

360 words - 1 page

Case analysis
Part oneProblem: Because of a large growth in its sales, the amount of money that Spencer needs to finance inventory and credit sales has increased. Most of the funds to satisfy this increase have come from a strategy of lengthening the time to pay suppliers. Thus trade discounts are missed, payables are high, liquidity is lower, the debt ratio is higher, and the missed discounts result in lower net profit margins.Part twoSources and Uses of Cash

A

B

1997

1998

1999

2000

B - A

Cash

72

66

50

32

-40

Accounts Rec.

804

1,248

1,796

2,560

1,756

Inventory

396

612

896

1,278

882

Current assets

1,272

1,926

2,742

3,870

NFA

114

126

132

154

40

Deferred Chgs

24

30

44

60

36

Other Assets

66

74

102

118

52

Total assets

1,476

2,156

3,020

4,202

Bank Loan

48

76

80

118

70

Accts. Pay.

492

1,010

1,740

2,746

2,254

Misc. Accr.

48

110

160

200

152

Current liabilities

588

1,196

1,980

3,064

Capital Stock

750

750

750

750

0

Ret. Earnings

138

210

290

388

250

Liabilities and Equity

1,476

2,156

3,020

4,202

Part threeCommon-sized Income statement analysis

1997
1998
1999
2000
Net Sales
100.0%
100.0%
100.0%
100.0%
Cost of goods sold
82.1%
83.1%
83.9%
84.0%
Gross Profit
18.0%
16.9%
16.1%
16.0%
Operating, Selling and Administrative Expense
13.8%
13.9%
13.8%
13.9%
Interest Expense
0.1%
0.1%
0.1%
0.0%
Purchase discounts taken
-0.6%
-0.7%
-0.4%
-0.2%
Profit before taxes
4.7%
3.6%
2.6%
2.3%
Income taxes
2.0%
1.6%
1.1%
1.0%
Profit after taxes
2.7%
2.0%
1.5%
1.3%

Part fourRatio analysis
Ratio analysis SPENCER COMPANY

Calculation of Ratios

1997

2000

Current ratio

Current assts/current...

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