Case 3. (Learning Objectives 2, 4: Identifying action to cut losses and establish profitability)

Suppose you manage Europe Vacations, a travel agency specializing in European tour destinations that lost money during the past year. To turn the business around, you must analyze the company and industry data for the current year to learn what is wrong. The company’s data follow:

Requirement 1. On the basis of your analysis of these figures, suggest four courses of action Europe Vacations might take to reduce its losses and establish profitable operations. Give your reason for each suggestion. (Challenge)

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A1 Europe Vacations, Inc. 1 2 Common-Size Balance Sheet Data 3 Cash and short-term investments 4 5 6 Trade receivables, net Inventory Prepaid expenses Outward Bound Industry Average 3.0% 6.8% 15.2 64.2 11.0 60.5 1.0 0.0 7 Total current assets 83.4% 78.3% 8 Fixed assets, net 12.6 15.2 9 Other assets 4.0 6.5 10 Total assets 100.0% 100.0% 11 12 Notes payable, short-term, 12% 17.1% 14.0% 13 Accounts payable 21.1 25.1 14 Accrued liabilities 7.8 7.9 15 Total current liabilities 46.0 47.0 16 Long-term debt, 11% 19.7 16.4 17 Total liabilities 65.7 63.4 18 Ord. shareholders' equity 34.3 36.6 19 Total liabilities and shareholders' equity 100.0% 100.0% 20