1. Brashs Limited was a leading music and retail electronics company selling CDs records and sheet music. In 1993, it failed and was delisted from the ASX. In 1990, it acquired a leading bookseller funding the purchase by debt finance and no new equity raising. Interest rates at the time were high relative to today's standard with risk-free rates approximating 9% and indicator corporate borrowing rates around 13% at the time of the bookstore acquisition. In years subsequent to the bookstore acquisition the company was noted for its frequent sales where large discounts were given to customers. The strategy of the company seemed to be to increase sales to get cash in to pay the interest charges on the monies borrowed. Based on this information and the DuPont/Profitability System Analysis below:

Which of the following is true?

A: It is NOT possible to judge what has caused Brashs to fail by looking at the past ratio history.

B: It IS possible to judge what has caused Brash's to fail by looking at the past ratio history and deducing its strategy for dealing with the crisis.

2. Explain your answer below in no more than one and one-half pages showing what you think is the driver of failure based on the Du Pont analysis below.