Financial Analysis

1556 words - 7 pages

A. 1. Some key points of the company’s financial picture that could impact the bank officer’s decision are as follows: while there is an increase in gross profits from year 12 to 13, there is a decrease from year 13 to 14, also while the payroll and executive compensations steadily increases from year 12 to 14, advertising basically decreases, and services and utilities continue to increase as well as expenses in general. The operating income also has a major decrease from year 12 to 14, which is not good for the company as it indicates what is available to the company before a few other items need to be paid, such as preferred stock dividends and income taxes, which needs to be increasing ...view middle of the document...

Thus, bringing the total liabilities and equity from years 12 to 13 with an increase, while year 13 to 14 shows a decrease. In looking at the gross profits, there is a small increase from year 12 to 13, but then the company has a decrease from year 13 to 14, which is a common trend for CSI, in general. So you would think, that since the company shows this decline in year 14 that the salaries and compensation would decrease as well, however, they steadily increase from year 12 to 13 then another increase from year 13 to 14, not a smart move for the company’s finances. The utilities also show a steady increase from year 12 to 13, then again from year 13 to 14. Regarding the cash and cash equivalents there is an increase from year 12 to 13, then also another increase from year 13 to 14, which is actually a good thing because that means that the company is continuing to grow their cash on hand, which shows the ability to meet their expenditures and increase their cash, of course, without having too much on hand, showing the company does not know how to utilize their cash smartly. The total stockholders’ equity also shows a steady increase from year 12 to 13, then again from year 13 to 14, which could mean an increase in the company’s earnings or capital, while the goal of every company should be to increase the wealth of their shareholders.

2. Any of the financial risks pointed out by the bank loan officer can be mitigated by the company by everyone involved having a keen awareness of the importance to identify, measure, monitor, and control credit risk as well as to determine that they hold sufficient capital against these risks and that they are effectively reimbursed for risks sustained. Even though exact credit risk management practices may vary between banks subject upon the nature and complexity of their credit activities, a complete credit risk management program will address these areas. There should be a thorough credit review process completed to look at all aspects of monies within CSI. There should also be periodical financial information given to the bank to ensure collaterals and ability to continue to pay loan. While reviewing the income statement for the company, several items are found that tend to be trending negatively, for example: the gross profit, utility costs, general and admin expenses, operating income, and net earnings. Yet, in those same years, you see the administrative salaries and executive compensation increase. Also, while decreasing the amount spent on advertising. During these times of negative trending, salaries should not be increased, nor should advertising expenses be decreased. These items should be addressed in order to mitigate the financial risks the company is facing.

3. The ratios that will indicate the ability to repay the principal and interest on the 5 year loan are as follows:
Acid-test ratio- this ratio decreases from 4.66 to 3.64, while a decrease is not great, the ratio is still well...

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