1. The Waterford Wax Company had the following current account activity last year.

                        Beginning            Ending                                                Beginning            Ending

Cash                        $   160                        $   333                        Accts Pay               $722                        $2,084

Accts Rec              1,875                          3,810                        Accruals               $217                             456

Inventory                 438                          2,676           

Curr Assets            $2,473                        $6,819                        Curr Liab.               $939                        $2,540

            a. Calculate and display the current account detail required for the Cash From Operating Activities section of the Statement of Cash Flows. 

            b. If you also knew that Waterford’s revenues had risen by 20% last year, would you be concerned about the firm’s financial health?  Why?  (Words only.)

11. Linden Corp. has a 10% market share in its industry.  Below are income statements ($M) for Linden and for the industry. 

                        Linden            Industry

            Sales            $6,000            $64,000

            Cost of Goods Sold            3,200            33,650

            Gross Margin            2,800            30,350

            Expenses:

               Sales and Marketing            430            3,850

               Engineering            225            2,650

               Finance and Administration            650            4,560

            Total Expenses            1,305            11,060

            EBIT            1,495            19,290

            Interest Expense            230            4,500

            EBT            1,265            14,790

            Tax            500            5,620

            Net Income            765            9,170

a.            Develop common sized income statements for Linden and the industry as a whole.

b.            What areas should management focus on to improve performance, and what kind of issues should be examined or looked for in each area?  

1. The Lineberry Golf Cart Co. sold 7,400 carts this year at an average unit price of $3,000.  50 days of sales remained uncollected in accounts receivable at the end of the year.  The firm produced the carts at a 42% cost ratio (COGS/Revenue) and had three months of inventory on hand at year end (3/12 of the year’s COGS). 

            The golf business is booming and management plans a 10% increase in unit sales despite a 5% price increase.  The firm has programs in place to improve production efficiency, inventory management, and the effectiveness of collections efforts.  It is assumed that these programs will decrease the cost ratio to 40%, lower year end inventory to 2 months, and lower year end receivables to 40 days of sales. 

            Compute Lineberry’s revenue, COGS (cost of goods sold) and gross margin as well as ending receivables and inventory for this year and next year’s plan.    Calculate using a 360 day year and assume sales are evenly distributed over the year.

2.            The Cambridge Cartage Company has partially completed its forecast of next year's financial statements as follows.

FINANCIAL PLAN

CAMBRIDGE CARTAGE COMPANY

($000)

INCOME STATEMENT                                                               BALANCE SHEET     

                                                                                                         NEXT YEAR       

                            NEXT YEAR                                                              Beginning               Ending    

Rev                        $17,220                                                ASSETS 

Cost/Exp                 14,120                                                Total Assets              $12,540              $18,330   

EBIT                  $  3,100                                            LIABILITIES & EQUITY     

Interest                         ?                                                  Current Liabs             $     410               $     680   

EBT                                 ?                                                  Debt                         $  5,630                          ?     

Tax                                 ?                                                  Equity                    $  6,500                          ?__     

EAT                                 ?                                                  Total L&E                 $12,540              $18,330   

The firm pays interest at 10% on all borrowings and pays a combined state and federal tax rate of 40%.  Complete the forecasted income statement and balance sheet.  Begin by guessing at interest expense as 10% of beginning debt.