2004
$1,013,376
861,370
$152,006
$40,535
50,000
15,201
$105,736
$46,271
$13,320
14,640
2004
18,480
$46,440
$18,425
($169)
-68
90,078
($102)
560,000
0
$668,503
($102)
$500,000
$0.00
-200,000
$300,000
$968,503
$50,000
$145,000
$140,000
$148,000
$148,000
10,000
5,000
$65,000
$63,366
10,506
5,100
$160,606
$98,000
19,998
7,331
$167,329
$196,000
15,995
9,301
$173,296
$190,000
16,795
11,626
$176,421
$183,000
175,000
$238,366
$303,366
$320,000
16,634
$336,634
$640,000
173,000
$271,000
$431,606
$320,000
39,493
1
$359,493
$791,099
271,000
$467,000
$634,329
$320,000
41,619
$361,619
$995,948
268,000
$458,000
$631,296
$320,000
25,184
$345,184
$976,480
264,000
$447,000
$623,421
$320,000
25,082
$345,082
$968,503
CAGR
3. What calculations should Juan do in order to get a good grasp
of what is going on with Quickfixs performance?
equipment
Accumulated depreciation
Net fixed asset
TOTAL ASSET
LIABILITIES AND EQUITIES
Short term debt bank loans
Account payable
Accruals
Current liabilities
Long term debt bank loans
Mortage
Long-term debt
Total liabilities
Common stock
Retained earnings
Total equity
TOTAL LIABILITIES AND
EQUITY
-3.91%
35.16%
100.00%
-6.32%
25.28%
100.00%
-10.04% -15.36%
40.16% 35.84%
100.00% 100.00%
-20.65%
30.98%
100.00%
7.81%
1.56%
0.78%
10.16%
9.90%
27.34%
37.24%
47.40%
50.00%
2.60%
52.60%
18.33%
1.33%
0.64%
20.30%
12.39%
21.87%
34.26%
54.56%
40.45%
4.99%
45.44%
14.06%
2.01%
0.74%
16.80%
19.68%
27.21%
46.89%
63.69%
32.13%
4.18%
36.31%
15.28%
1.73%
1.20%
18.22%
18.90%
27.26%
46.15%
64.37%
33.04%
2.59%
35.63%
100.00%
100.00%
100.00% 100.00%
15.16%
1.64%
0.95%
17.75%
19.46%
27.45%
46.90%
64.65%
32.77%
2.58%
35.35%
100.00%
The common size income statement indicates that the firms cost of
goods sold has increased quite a bit since 2000. Miscellaneous
expenses have also increased from 3% of sales to 1.5% of sales. We
can wonder if the expenses has a bad effect on the net income. The
firm needs to look into the costs structure and find out a way to
reduce it.
The common size balance sheet shows that the firms inventory and
accounts receivables levels have gone up sharply, while its cash
balance has significantly declined. Fixed assets have increased over
the past 5 years. The firm has taken on significantly larger amounts of
short and long-term debt relative to its total assets. Equity has not
increased proportionately with debt. As a result its capital structure
has become more leveraged.
DU PONT ANALYSIS
Net Profit Margin
Total Asset Turnover
Equity Multiplier
Return on Assets
Return on Equity
QUICKFIX RATIOS
Current Ratio
Quick Ratio
Cash Ratio
Total Debt Ratio
Debt-Equity Ratio
Equity Multiplier
Times Interest Ratio
Cash Coverage Ratio
Inventory Turnover ratio
Receivables Turnover
ACP or Days' Sales in Receivables
Total Asset Turnover
Profit Margin
ROA
ROE
2000
2.77%
0.94
1.90
2.60%
4.94%
2001
3.49%
0.83
2.20
2.89%
6.36%
2002
0.27%
0.78
2.75
0.21%
0.59%
2003
-1.88%
0.89
2.83
-1.68%
-4.76%
2004
-0.01%
1.05
2.81
-0.01%
-0.03%
6.38
2.54
2.38
0.47
0.90
0.90
1.79
2.50
2.40
60.00
6.08
0.94
2.77%
100.00
%
190.12
%
3.68
2.00
1.92
0.55
1.20
1.20
2.06
2.76
2.43
54.58
6.69
0.83
3.49%
100.00
%
220.06
%
3.56
0.57
0.45
0.64
1.75
1.75
1.07
2.10
1.56
39.00
9.36
0.78
0.27%
100.00
%
275.41
%
3.62
0.61
0.17
0.65
1.83
1.83
0.42
1.48
1.68
11.25
32.44
0.89
-1.88%
100.00
%
282.89
%
3.79
0.62
0.10
0.64
1.81
1.81
1.00
2.07
1.81
11.25
32.44
1.05
-0.01%
100.00
%
280.66
%
Quickfix Autos ROA is currently negative but has improved since 2003.
Most of the decrease has come from the decreasing profit situation.
The firms total asset turnover has improved consistently since 2002.
The firms ROE has dropped significantly since 2001.
This has
occurredbecause of the drop in net profit margin. Because the firm
has such a high equity multiplier due to the high debt.
6. Comment on Quickfixs liquidity, asset utilization, long-term
solvency, and profitability ratios. What arguments would have
to be made to convince the bank that they should grant
Quickfix the loan?
Liquidity:
The firms overall liquidity is quite good with a current ratio of 3.79
and it has improved quite a bit over the past three years. However,
much of its current assets are tied in inventory, since its quick ratio is
only 0.62. The ability of the firm to pay off its current liabilities from
its cash reserves is not very good either and has deteriorated
significantly over the past five years.
Asset utilization:
The firms inventory turnover has declined considerably since 2000.
This occurred due to the increase of inventories over the past 5 years.
The receivables turnover ratio has declined as well. The total asset
turnover is not very high but highest in five years.
Long-term solvency:
Quickfix Autos debt ratio is 64% of total assets. Its debt level has
gone up by almost 17% since 2000. Since the firms coverage ratios
are fairly low, the firms financial structure can be considered to be
quite risky.
Profitability:
The firms profitability ratios have declined significantly in the past
three years. The firm is currently making losses.
Arguments that can be made to get the loan:
If Quickfix wants the bank to grant it the loan, the firm need to
improve liquidity (current ratio) and asset turnover.
7. If you were the commercial loan officer and were approached
by Andre for a short term loan of $25,000, what would your
decision be?
Quickfix's quick ratio has been very weak for the past 5 years. It
indicates the poor cash flow situation. If the firm's performance
become better in the next 2 quaters, I would reconsider.
8. What recommendations should Juan make for improvement, if
any?
The firm needs to improve its inventory management. Further, the
cost of sales and miscellaneous costs should be looked into and
brought down more in line with its level in 2000. This will improve the
liquidity and profitability of the company.
9. What kinds of problems do you think Juan would have to cope
with when doing a comprehensive financial statement analysis
of Quickfix Parts?
What are the limitations of financial
statement analysis in general?
The general problems that we will have to cope with when doing a
comprehensive financial statement analysis are: Selection of comparison
benchmark, The differences
in accounting procedures and depreciation
expenses, Seasonal businesses.
In this situation, whendoing a comprehensive financial statement
analysis of Quickfix Parts, Juan would have to make the right selection of
comparison benchmark.