• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month
Page
  1. 1
    1
  2. 2
    2
  3. 3
    3
  4. 4
    4
  5. 5
    5
  6. 6
    6
  7. 7
    7
  8. 8
    8
  9. 9
    9
  10. 10
    10
  11. 11
    11
  12. 12
    12
  13. 13
    13
  14. 14
    14
  15. 15
    15
  16. 16
    16
  17. 17
    17
  18. 18
    18
  19. 19
    19
  20. 20
    20
  21. 21
    21
  22. 22
    22

Cariboo Case

Extracts from this document...

Introduction

Tables of Contents 1. Executive Summary 3 2. Introduction 4 3. Revised Financial Statements 4 4. Income Statement Analysis 6 a. Sales, COGS and Gross Profit 6 b. Selling and Administration Expense 7 c. Net Income 7 5. Balance Sheet Analysis 8 a. Accounts Receivables 8 b. Inventories 9 c. Plant, Property and Equipment 10 d. Accounts Payable 10 e. Retained earnings 11 6. Cash Flow Statement Analysis 11 7. Ratio Analysis 13 a. Liquidity Ratio 13 b. Profitability Ratio 13 c. Solvency Ratio 14 8. Recommendations 14 a. Short-Term recommendations 14 b. Medium-Term recommendations 15 9. Conclusion 16 10. Appendix 17 1. Executive Summary Cariboo Industrial (CI) Ltd was retail chain specializing in the sale of industrial equipment and supplies to commercial contractors in British Columbia and Alberta. It was successful 2000 - 2001. It had a good capital structure with moderate leverage. Revenue and net income were both high. Return on equity (ROE) as well as return on assets (ROA) was high too. Jack Venables was hired to manage CI in early 2001 when the owner Martha McMaster suffered a stroke. Since then, things went downhill for CI. Leverage began to increase and so did accounts payable. Large parcels of land were purchased above their market value. These problems intensified in year 2003. As compared to 2001, net income in 2003 fell by more than 80%. Selling and administration expenses rose significantly. Accounts receivables were grossly inflated by fictitious sales made. However, only less than half of the accounts receivables were expected to be collected. Accounts payable was "over-stretched" and many suppliers cut CI off further credit. Short term liquidity was in jeopardy. Profitability ratio painted a pessimistic picture too. ROE and ROA both fell since 2001. Solvency ratios revealed that CI was undertaking too much leverage, increasing the risk of the company substantially. The outlook of the company was gloomy. ...read more.

Middle

Retained Earnings 6,810 6,001 1,034 (27,952) Trend Analysis 2001 2002 2003 Revised Total equity 100.00% 93.54% 85.12% -146.46% Retained Earnings 100.00% 88.12% 15.18% -410.46% Common Size Statement 2001 2002 2003 Revised Total equity 46.42% 14.64% 11.03% -27.12% Retained Earnings 25.25% 7.50% 1.07% -28.94% Taking 2001 as the base year, both total equity and retained earnings fell. Total equity only accounted for 11.03% of the total company, while the remaining was made up of short term debts. The company structure was highly leveraged in 2003. Taking into account the revised balance sheet, total equity in 2003 was nearly one quarter of that in 2001. Total equity was negative in 2003, hence, the company relied solely on debt financing, which was highly risky. 6. Cash Flow Statement Analysis Accrual earnings may not always provide a reliable measure of the enterprise performance and health. Cash flow statement reports the entity's cash flow and aids in the prediction of future cash flows. It also allows investors to evaluate management decisions and determine the company's ability to pay dividends to shareholders. Cash flow statement of CI was prepared. 2001 2002 2003 Net Income 3,432 709 419 Add Depreciation 1,425 3,130 3,607 A/R (1,810) (2,486) (7,430) Inventories (590) 452 (150) Prepayments (412) 140 329 A/P - 10,747 6,539 Net Cash by Operating Activities 2,045 12,692 3,314 PPE (4,134) (54,585) (13,360) Net Cash by Investing Activities (4,134) (54,585) (13,360) Cash received from line of Credit (325) 5,656 (7,007) Current Portion of LT Debt 685 5,229 60,023 Long Term Debt 2,978 32,205 (41,921) Common Shares - - 3,913 Dividends Paid (487) (1,518) (5,386) Net Cash by Financing Activities 2,851 41,572 9,622 Total cash change 762 (321) (424) Beginning cash balance 142 904 583 Ending cash balance 904 583 159 Ideally, the largest cash inflow of any company should come from its operating activities. Unfortunately, major sources of cash for CI were from its financing activities, not from its operating activities. ...read more.

Conclusion

Net Income 100.00% 20.66% 12.21% -832.37% Balance Sheet 2001 2002 2003 Revised Current Assets Cash 100.00% 64.49% 17.59% 17.59% Accounts Receivable 100.00% 157.81% 330.60% 116.28% Inventories 100.00% 88.56% 92.36% 46.18% Prepayments 100.00% 70.15% 0.00% 0.00% Total Current Assets 100.00% 116.34% 187.27% 72.56% PP&E 100.00% 336.76% 394.71% 316.87% Less: A/D 100.00% 154.79% 217.92% 217.92% Net PPE 100.00% 396.71% 452.95% 349.47% Total Assets 100.00% 296.64% 358.12% 250.64% Current Liabilities Accounts Payable 100.00% 774.22% 1184.44% 1184.44% Line-of-credit 100.00% 518.65% 0.00% 0.00% Current Portion of LT Debt 100.00% 392.29% 3747.40% 3747.40% Total Current Liabilities 100.00% 556.95% 1814.98% 1814.98% Long-term Debt 100.00% 431.46% 0.00% 0.00% Total Liabilities 100.00% 472.57% 594.61% 594.61% Shareholders' Equity 100.00% 93.54% 85.12% -146.46% Common Shares 100.00% 100.00% 168.56% 168.56% Retained Earnings 100.00% 88.12% 15.18% -410.46% Total Liabilities & Equities 100.00% 296.64% 358.12% 250.64% Appendix 3: Ratios Ratios 2001 2002 2003 Liquidity Current Ratio 2.03 0.42 0.21 Cash Ratio 0.191 0.022 0.002 Quick Ratio 1.10 0.28 0.17 Receivable Turnover 6.61 6.31 4.15 Inventory Turnover 3.61 6.11 7.99 Profitability Ratio ROE 31.07% 5.85% 3.75% ROA 14.40% 1.33% 0.47% Financial Leverage Percentage 16.67% 4.53% 3.27% Profit Margin 15.28% 2.03% 0.96% Fixed Asset Turnover 1.405 0.813 0.591 Test of Solvency Times interest earned 5.80 1.22 1.11 Cash coverage 4.54 3.58 1.61 Debt-to-equity 1.15 5.83 8.06 Total Debt Ratio 0.54 0.85 0.89 Working Capital Ratio Days receviables outstanding 55 58 88 Days inventory held 101 60 46 Appendix 4: Cash Injections To bail CI out of financial distress, cash injection equivalent to the total equity ($18,332,000) is required. In order for Calgary Bank not to file bankruptcy proceedings against CI, CI would be required to pay the interest due Cash balance used to pay for interest 159 Cash injection 5682 In order for Calgary Bank to continue the line of credit and long-term loans, current ratio of CI must be at least equal to 1.5. Current Ratio = current assets/current liabilities Current Liabilities 85,921 Current Ratio 1.5 Current Assets 128,882 Cash 122,057 Cash injections 121,898 ?? ?? ?? ?? 20 ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our University Degree Accounting section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related University Degree Accounting essays

  1. ABS-CBN Financial Analysis. ABS-CBN Corporation is a Filipino media conglomerate and the country's largest ...

    company's Z's score from 2010 to 2011 has decreased by .54 from 1,76 to 1.10; ABS-CBN is in the "Grey" zone which means that there is still a possibility of bankruptcy for the coming years but not in the next 3 years.

  2. Working Capital Management

    14.4.1 Debtors' Turnover Ratio Debtors turnover ratio = Credit Sales / Average (Debtors + Receivables) This ratio measures how rapidly receivables are collected. A high ratio is indicative of shorter time-lag between credit sales and cash collection. A low ratio shows that debts are not being collected rapidly.

  1. Calculate the Gross Profit Margin, Current Ratio, Acid Test Ratio, Average Settlement Period for ...

    is beneficial to analyse Uffington's business transactions however in this case I feel that further analysis is required in the areas of profitability and investment. Therefore Kathryn could apply ROSF - Return On Ordinary Share Funds This ratio compares profit for the period available with the average stake in the business.

  2. Risk Management Case Study

    If the risks are material or inadequately managed, the examiner is directed to perform an impact analysis to assess the financial impact to the bank and assess whether any enforcement action is necessary. The use of modules should be tailored to the characteristics of each bank based on its size, complexity, and risk profile.

  1. Financial statement analysis

    To its credit, the company has sought higher margins by sourcing more than 80% of its stock from overseas manufacturers. On the downside, Colorado continues to face challenges with underperforming brands JAG and Mathers Shoes. Managing director Roman Webb has stated that the organisation would like to expand beyond its

  2. Implied trust of the home.

    The following types of conduct will not infer an acquisition of an interest: * Improvements to the home. Pettitt V Pettitt = the hose was in the sole name of the wife, the husband claimed a share in the proceed for sale when they divorced.

  1. This report will incorporate an analysis of Blackmores LTD including, the level of leverage ...

    The impact of the new site is also addressed below in 4.2 Capital Expenditure and Financing. 4.2 Capital Expenditure and Financing Capital expenditure is the investments in long-lived assets for the purpose of maintaining or expanding the company's operation (Ross, Westerfield and Jaffe, 2009).

  2. The topic I have chosen is the Business and financial analysis of a company ...

    Tesco launched its online shopping and delivery services and now has over 1 million active customers who chose to buy online. Tesco Telecom offer simple, straightforward telecom services with great value tariffs It offers mobile network, internet access, home phone services and internet phone services.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work