What additional information about websters would be useful

Assignment Help Financial Management

Reference no: EM13926915

Allied Apparel Company received a large order from Websters Department Stores,

which operates a chain of approximately 300 popular-priced department stores located primarily in the New England-Middle Atlantic states. Allied is considering extending trade credit to Websters. As part of its credit check, Allied obtained Web- sters' balance sheets and income statements for the last three years. A check of sev- eral of Websters' trade creditors has revealed that the firm generally takes any cash discounts when they are offered but averages about 30 days overdue on its payments to two suppliers whose credit terms are "net 30."

A Dun & Bradstreet publication entitled Key Business Ratios yielded the following information concerning the "average" financial ratios for firms in the same line of business as Websters:

Current assets to current liabilities	2.82
Earnings after taxes to sales	1.89%
Earnings after taxes to stockholders' equity	5.65%
Total liabilities to stockholders' equity	1.48

Websters Department Stores Balance Sheet (in Thousands of Dollars)

Assets 2008 2009 2010

Current assets:

Cash and marketable securities $ 9,283 $ 13,785 $ 23,893

Accounts receivable (net) 162,825 179,640 140,543

Inventories 119,860 135,191 120,707

Other 1,994 2,190 1,956

Total current assets $293,962 $ 330,806 $296,099

Long-term assets:

Building and equipment (net) $ 27,426 $ 30,295 $ 30,580

Other 11,821 14,794 16,687

Total long-term assets $ 39,247 $ 45,089 $ 47,267

Total assets $333,209 $ 375,895 $343,366

Liabilities and stockholders' equity

Current liabilities:

Accounts payable $ 23,637 $ 21,861 $ 15,020

Notes payable 117,010 135,929 165,299

Other 49,273 49,229 29,653

Total current liabilities $189,920 $ 207,019 $209,972

Long-term liabilities:

Debentures $ 38,001 $ 36,101 $ 35,201

Term loan - 28,440 29,701

Other 4,986 853 655

Total long-term liabilities $ 42,987 $ 65,394 $ 65,557

Stockholders' equity:

Common stock	$ 5,576	$ 5,576	$ 5,576
Preferred stock	2,580	2,580	2,580
Retained earnings	92,146	95,326	59,681
Total stockholders' equity	$100,302	$103,482	$ 67,837
Total liabilities and stockholders' equity	$333,209	$375,895	$343,366

Websters Department Stores Income Statement (in Thousands of Dollars)

	2008	2009	2010
Sales	$494,550	$556,132	$529,857
Cost of sales	337,580	384,899	390,980
Gross profit	$156,970	$171,233	$138,877
Selling, general, and administrative expenses	133,330	155,494	187,926
Earnings before taxes	$ 23,640	$ 15,739	$-49,049
Income taxes	7,715	6,222	-14,741
Earnings after taxes	$ 15,925	$ 9,517	$-34,308
Dividends	6,343	6,337	1,337
Additions to retained earnings	$ 9,582	$ 3,180	$-35,645

In evaluating Websters' application for trade credit, answer the following questions:

a. What positive financial factors would lead Allied to decide to extend credit to Websters?

b. What negative financial factors would lead Allied to decide not to extend credit to Websters?

c. What additional information about Websters would be useful in performing the analysis?

Reference no: EM13926915

Questions Cloud

Threat to information security in an organization : What is the most common threat to information security in an organization?

The central bank for the united states : Discussion must be apa format. paragraph or two.The Federal Reserve System was created in 1913 by an act of Congress and is made up of a Board of Governors and 12 Federal Reserve Banks. The Federal Reserve (The Fed) is the central bank for the United..

Shortage of labor in the american colonies : Directions: Respond to the following questions using complete sentences. Your answer should be at least 1 paragraph in length, which must be composed of three to five sentences. 1. What practices resulted from a shortage of labor in the American co..

Determine project net present value : If you put $75 in a bank account today o§ering a 4% annual yield that is compounded quarterly, how much money will you have after 100 years?

What additional information about websters would be useful : What negative financial factors would lead Allied to decide not to extend credit to Websters? What additional information about Websters would be useful in performing the analysis?

The standpoint of vertical and horizontal equity : Evaluate the following taxes from the standpoint of vertical and horizontal equity a) a 25 cent per gallon tax on milk b) a tax on stock market transactions

Illustrate the economic concepts of scarcity : 2.Use the graph to illustrate the economic concepts of scarcity, unemployment, inefficiency, and opportunity costs. When possible, use data points on the graph to accompany your verbal explanation.

Mean and standard deviation for weight and bmi : Correlations are used to describe the strength and direction of a relationship between two variables. A correlation between two variables is known as a bivariate correlation. In this module the Pearson Product-Moment Correlation will be used when ..

All firms can increase the volume of goods : All firms can increase the volume of goods or services sold by cutting prices. But the volume (quantity) of goods or services a firm sells differs from a firm's revenues (price times quantity). Select your firm or a firm not previously discussed. Wha..

User Account

All Pages