Reference no: EM13987450
INTERNATIONAL TRADE FINANCE
CASE #3
Instructions:Analyze the financial statements of StreetWise Ltd. and answer the questions as indicated below.
Additional information about StreetWise Ltd:
No dividends have been paid to INTERNATIONAL TRADE FINANCE common shareholders for the past three years. Management needs to determine its investment and financing needs for the next financial year. Sales are predicted to increase by 5% with no additional investment in fixed assets required. All other expenses are expected to increase proportionally to sales.
In recent months, suppliers have been pressing for payment. The CEO has, therefore, decided to reduce the level of accounts payable to an average of 40 days outstanding. In order to achieve this, he has decided to approach the bank with a view to increasing the overdraft to finance the necessary payments. The business is currently paying 12% interest on the overdraft.
Requirement:
Write a memo to the CEO of StreetWise Ltd. that includes the following:
1. Prepare a financial forecast for the financial year ending January 31, 2016 to determine the company's investment and financing needs based on the expected growth.
2. Comment on the liquidity and efficiency of the business after calculating relevant ratios.
3. As at January 31, 2105 calculate the amount to be paid to suppliers (accounts payable) to reduce the payment period to an average of 40 days outstanding.
4. State, with reasons, how you consider the bank would react to the proposal to allow the increased overdraft as required by the additional financing required to settle the amount (calculate in 3) to suppliers.
5. Evaluate four source of financing (internal or external, but excluding a bank overdraft) that may be used to finance the reduction in accounts payable and state, with reasons, which of these you consider the most appropriate. \
STREETWISE LTD
INCOME STATEMENT for the year ended January 31, 2015
($ millions)
Sales 14.2
Less: Cost of goods sold 7.8
Gross Profit 6.4
Less: Selling, admin and distribution expenses 5.1
Earnings before interest and tax 1.3
Less: Interest expense 0.8
Earnings before taxes 0.5
Less: Income taxes 0.2
Net Income 0.3
BALANCE SHEET as at January 31, 2015
Current assets
Cash 0.1
Accounts receivable 3.6
Inventory 3.8
Total current assets 7.5
Property, plant and equipment
Land, buildings & equipment 1.0
Buildings 2.8
Equipment 0.9
Vehicles 0.5
Total property, plant and equipment 5.2
TOTAL ASSETS 12.7
Current liabilities
Bank overdraft 3.6
Accounts payable 1.8
Total current liabilities 5.4
Long-term liabilities
Debentures (secured on land) 3.5
Total liabilities 8.9
Shareholders' equity
Common shares 2.0
Retained earnings 1.8
Total shareholders' equity 3.8
Total liabilities and shareholders' equity 12.7
($ millions)
|
What is the angualr velocity of the bicycle wheel
: A bicycle wheel was observed to rotate at 44 rot/min at t = 0 s, and 229 rot/min at t = 7.0 s. Assume that the bicycle is moving on a horizontal flat road and that the wheels have a 0.33 m radius. what is in rad/s the angualr velocity of the bicyc..
|
|
Demand for a very expensive heart medication
: Your local pharmacist is attempting to forecast the demand for a very expensive heart medication. She places a large order at the beginning of each month, for which she receives an added discount for quantity purchases. The pharmacist is attempting t..
|
|
Discuss what they are and why they are important
: There are several important disclosure items to consider when auditing the purchasing process. Discuss what they are and why they are important.
|
|
What are the six challenges facing managers in the workplace
: What are the six challenges facing managers in the workplace today? Each student is expected to discuss one of the major challenges, highlighting its importance in the 21st century workplace and how it affects the behavior of people within organizati..
|
|
Prepare a financial forecast for the financial year
: Prepare a financial forecast for the financial year ending January 31, 2016 to determine the company's investment and financing needs based on the expected growth.
|
|
What activities provided the largest source of cash
: What activities provided the largest source of cash? Is this a sign of financial strength or weakness?
|
|
Physical separation for security in a computing environment
: Give an example of the use of physical separation for security in a computing environment. Give an example of an object whose security level may change during execution
|
|
What angle is the direction of the magnetic field
: A current-carrying wire has been bent into the form shown in(Figure 1), with a half-circle of radiusR1 lying in thexy plane connected via two straight segments to a half-circle of radius R2 lying in they z plane. The current direction is as indica..
|
|
What is bounded rationality
: What is "bounded rationality"? Arthur suggests that decision makers conceive and nurture an "ecology of focal predictors" to deal with complexity of the unknown. Explain Arthur's ideas using the following scenario: Forecast the Dow Jones Average for ..
|