Andre Pires opened his automobile parts store, Quickfix Auto Parts, five years ago, in a midsize city located in the Midwestern region of the United States. Having worked for an automobile dealership, first as a technician, and later as the parts department manager, for over 15 years, Andre had learned the many nuances of the fiercely competitive automobile servicing business. He had developed many contacts with dealers and service technicians, which came in really handy when establishing his own retail store. Business had pick up significantly well over the years, and as a result, Andre had more than doubled his store size by the third year of operations. The industry and local forecasts for the next few years were very good, and Andre was confident that his sales would keep growing at or above recent levels. However, Andre had used up most of his available funds in expanding the business and was well aware that future growth would have to be funded with external sources of funds. What was worrying Andre was the fact that over the past two years, the stores net income figures had been negative, and his cash flow situation had gotten pretty weak (See Tables 1 and 2). He figured that he had better take a good look at his firms financial situation and improve it, if possible, before his suppliers found out. He knew fully well that being shut out by suppliers would be disastrous! Andres knowledge of finance and accounting, not unlike many small businessmens, was very limited. He had often entertained the thought of taking some financial management courses, but could never find the time. One day, at his weekly bridge sessions, he happened to mention his problem to Tom Andrews, his longtime friend and bridge partner. Tom had often given him good advice in the past and Andre was desperate for a solution. Im no finance expert, Andre, said Tom, But you might want to contact the finance department at our local universitys business school and see if you can hire an MBA student as an intern. These students can often very insightful, you know. Thats exactly what Andre did. Within a week he was able to recruit Juan Plexo, a second semester MBA student, who had an undergraduate degree in Accountancy and was interested in concentrating in Finance. When Juan started his internship, Andre explained exactly what his concerns were. Im going to have to raise funds for future growth, and given my recent profit situation, the prospects look very bleak. I cant seem to put my finger on the exact cause. The banks commercial loan committee is going to want some pretty convincing arguments as to why they should grant me the loan. I need to put some concrete remedial measures in place, and was hoping that you can help sort things out, Juan, said Andre. I think I may have bitten off more than I can currently chew. Questions

Q1. Which statements should Juan refer to develop a fair assessment of the firms financial condition?

Q2. Using a spread sheet Construct the Cash Flow Statement for the most recent years.

Q3. Juan knows that he should compare Quickfixs condition with an appropriate benchmark. How should he go about obtaining the necessary comparison data?

Q4. Comment on Quick fixs liquidity, asset utilization, debt management, and profitability ratios. What arguments must be made to convince the bank that they should grant Quick fix the loan?

Q5. If you were the commercial loan officer and were approached by Andre for a shortterm loan of $25,000, what would your decision be? Why?

Q6. What recommendations should Juan make for improvement, if any?

Quickfix Autoparts Balance Sheet ASSEETS Cash and marketable securities Accounts receivable Inventory Current Assets Land, building and equipment Accumulated depreciation Net foued assets Total assets 2014 155,000 10,000 250,000 $415,000 250,000 25,000 $225,000 $640,000 2015 309,099 12,000 270,000 $591,099 250,000 -50,000 $200,000 $791,099 2016 75,948 20,000 500,000 $595,943 500,000 100,000 $400,000 $995,945 2017 28,826 77,653 $20,000 $626,479 500,000 150,000 $350,000 $976,479 2018 18,425 90,078 580,000 $668,503 500,000 200,000 $300,000 $958,503 2014 50,000 10,000 2015 140,000 19,998 5,000 $65,000 LIABILITIES AND EQUITIES Short term bank loans Accouns payable Accruals Current liabilities Long term loans Mortgage Long term debt Total liabilities Common stock (100,000 shares) Retained earnings Total equity Total liabilities and Equity 2015 145,000 10,506 5,100 $160,805 98,000 173,000 271,000 $431,606 320,000 39493 $359,493 $791,099 $167,329 195,000 271,000 457,000 175,000 238,356 $303 356 320,000 16,634 2017 148,000 15,995 9,301 $173,295 190,000 268,000 458,000 $631,295 320,000 25,184 $345,184 $976,480 2018 148,000 16,795 11,625 $176,421 183,000 264,000 447,000 $623,421 320,000 25082 $345,082 $958,503 320,000 41,619 $351,619 $995,948 $640,000 Quickfix Autoparts Income Statement Net sales Cost of good sold Gross profit Administrative and selling expenses Depreciation Miscellaneous expenses Total operating expenses EBIT Interest on short term loans Interest on long term loans Interest on mortgage Total interest Before tax earnings Taxes (40%) Net Income 2014 600,000.00 480,000.00 $120,000.00 30,000.00 25,000.00 2,027.00 $57,027.00 62,973.00 15,000.00 8,000.00 12,250.00 $35,250.00 27,723.00 11.089 20 $16,533.80 2015 2016 655,000.00 780,000.00 537,100.00 655,200.00 $117.900.00 $124,800.00 15,345.00 16,881.00 25,000.00 50,000.00 3,557.00 5,725.00 $43,902.00 $72,606.00 73,998.00 52,194.00 15,950.00 14,000.00 7.840.00 15,680.00 12,110.00 18,970.00 $35,900.00 $48,650.00 38,098.00 3,544.00 15,239,20 1.417.60 $22,858.80 $2,126.40 2017 2018 873,600.00 1,013,376.00 742,560.00 851,370.00 $131,040.00 $152,006.00 43,680.00 40,535.00 50,000.00 50,000.00 17,472.00 15,201.00 $111,152.00 $105,735.00 19,888.00 46,270.00 13,320.00 13,320.00 15,200.00 14,640.00 18,760.00 18,480.00 $47,280.00 $45,440.00 27,392.00 -170.00 -10,956.80 $16,435.20) ($102,00) Dividends on stocks Addition to retained earnings $0.00 $16,634.00 $0.00 $2,126.00 $0.00 ($16,435.00) $0.00 ($102.00) $22,859.00 EPS (100,000 shares) $0.23 $0.02 $0.16) $0.00) Quickfix Autoparts Balance Sheet ASSEETS Cash and marketable securities Accounts receivable Inventory Current Assets Land, building and equipment Accumulated depreciation Net foued assets Total assets 2014 155,000 10,000 250,000 $415,000 250,000 25,000 $225,000 $640,000 2015 309,099 12,000 270,000 $591,099 250,000 -50,000 $200,000 $791,099 2016 75,948 20,000 500,000 $595,943 500,000 100,000 $400,000 $995,945 2017 28,826 77,653 $20,000 $626,479 500,000 150,000 $350,000 $976,479 2018 18,425 90,078 580,000 $668,503 500,000 200,000 $300,000 $958,503 2014 50,000 10,000 2015 140,000 19,998 5,000 $65,000 LIABILITIES AND EQUITIES Short term bank loans Accouns payable Accruals Current liabilities Long term loans Mortgage Long term debt Total liabilities Common stock (100,000 shares) Retained earnings Total equity Total liabilities and Equity 2015 145,000 10,506 5,100 $160,805 98,000 173,000 271,000 $431,606 320,000 39493 $359,493 $791,099 $167,329 195,000 271,000 457,000 175,000 238,356 $303 356 320,000 16,634 2017 148,000 15,995 9,301 $173,295 190,000 268,000 458,000 $631,295 320,000 25,184 $345,184 $976,480 2018 148,000 16,795 11,625 $176,421 183,000 264,000 447,000 $623,421 320,000 25082 $345,082 $958,503 320,000 41,619 $351,619 $995,948 $640,000 Quickfix Autoparts Income Statement Net sales Cost of good sold Gross profit Administrative and selling expenses Depreciation Miscellaneous expenses Total operating expenses EBIT Interest on short term loans Interest on long term loans Interest on mortgage Total interest Before tax earnings Taxes (40%) Net Income 2014 600,000.00 480,000.00 $120,000.00 30,000.00 25,000.00 2,027.00 $57,027.00 62,973.00 15,000.00 8,000.00 12,250.00 $35,250.00 27,723.00 11.089 20 $16,533.80 2015 2016 655,000.00 780,000.00 537,100.00 655,200.00 $117.900.00 $124,800.00 15,345.00 16,881.00 25,000.00 50,000.00 3,557.00 5,725.00 $43,902.00 $72,606.00 73,998.00 52,194.00 15,950.00 14,000.00 7.840.00 15,680.00 12,110.00 18,970.00 $35,900.00 $48,650.00 38,098.00 3,544.00 15,239,20 1.417.60 $22,858.80 $2,126.40 2017 2018 873,600.00 1,013,376.00 742,560.00 851,370.00 $131,040.00 $152,006.00 43,680.00 40,535.00 50,000.00 50,000.00 17,472.00 15,201.00 $111,152.00 $105,735.00 19,888.00 46,270.00 13,320.00 13,320.00 15,200.00 14,640.00 18,760.00 18,480.00 $47,280.00 $45,440.00 27,392.00 -170.00 -10,956.80 $16,435.20) ($102,00) Dividends on stocks Addition to retained earnings $0.00 $16,634.00 $0.00 $2,126.00 $0.00 ($16,435.00) $0.00 ($102.00) $22,859.00 EPS (100,000 shares) $0.23 $0.02 $0.16) $0.00)