Ashley Palmer Clothing, Inc., produces dresses for women. Sales continued to increase over the next three years, The firm was launched in June 2009 by Ashley Jantz and reaching $4.7 million in 2013. During this same time, the Amanda Palmer, both graduates of Boston College. Ash- number of employees grew from 7 to 16 . The company also ley Palmer designs apparel for the moderp woman's shape moved into a 4,000-square-foot facility and added addirather than using the traditional standard sizing. tional sewing equipment and presses. History of Sizing Clothing Planning for Growth In 1939, the National Bureau of Home Economics of the In August 2013, Ashley Palmer ventured into creating proU.S. Department of Agriculture was charged with stan- fessional attire for young women. The products received dardizing sizing for women's clothing. Over a two-year rave reviews. Within three months, the retail outlets had period, some 15,000 women were given full-body measure- sold over 90 percent of their inventories, quickly placing ments. This system created the sizing system that is still in orders for more products. use today. The founders, while excited about the prospect of Studies have found that the average body proportions sales growth, began to worry. Based on their estimates, of American women when the sizing charts were created the company would most probably experience a 50 percent are different from the body proportions of today's women. growth rate, compared to the 25 percent they had experiSpecifically, American women in 1939 were markedly enced over the past two years. They knew that if they were more slender and shorter. The result is that it is difficult for to avoid cash flow problems from the anticipated growth, some women to find clothing that fits well. In the Septem- they needed to anticipate the asset requirements and addiber2009issueofFashionistaMagazine,Jantz,whostandstionalfinancingthatwouldberequiredtosustaintheirsixfeettall,said:business. business. The owners believed they would need to purchase To meet the firm's financing needs, Palmer has negoti- payable and other current liabilities should increase proated a line of eredit (short-term debt) with Amway Bank portionally with sales increases. for up to $100,000. The bank has also agreed to loan the Finally, Jantz and Palmer are willing to provide more firm $150,000 for purchasing new equipment; this is to be of their own money in the form of equity up to a total repaid over five years. The principal on the latter loan is to of $100,000 in equity if needed. They will also lower the be repaid in $30,000 annual payments, with interest pay- amount of dividends they have been paying themselves ments being made on the remaining balance of the note. (about 40 percent of earnings over the past two years). Both notes will carry a 5 percent interest rate. The short- They both have decided to limit their dividends individuterm notes payable and long-term debt owed in 2013 will ally to $15,000, or a total of $30,000. be reduced by $50,000 and $30,000, respectively. Accounts Ashley Palmer Clothing, Inc. Balance Sheets for tho Years Endinn Decemher 31.2011.2012. and 2012 (enntinad) stionsintheassumptionsthatJantzandPalmerhaveexceed55percent,cantheownersexpecttobeabletcencesheetfor2014.Assumethatthelineofcreditidedbythebankwillbeneededforthefullyear.gthefinancialratiospresentedinChapter10,pareAshleyPalmersratiosovertime,includingtheproformaratiosfor2014.Ifthebankrequiresacurrentratioofatleast1.5andadebtrationottohonorthesecovenants?3.Prepareastatementofcashflowsfor2013andthe2014projections.Whatdidyoulearnfromthesestatements? Ashley Palmer Clothing, Inc., produces dresses for women. Sales continued to increase over the next three years, The firm was launched in June 2009 by Ashley Jantz and reaching $4.7 million in 2013. During this same time, the Amanda Palmer, both graduates of Boston College. Ash- number of employees grew from 7 to 16 . The company also ley Palmer designs apparel for the moderp woman's shape moved into a 4,000-square-foot facility and added addirather than using the traditional standard sizing. tional sewing equipment and presses. History of Sizing Clothing Planning for Growth In 1939, the National Bureau of Home Economics of the In August 2013, Ashley Palmer ventured into creating proU.S. Department of Agriculture was charged with stan- fessional attire for young women. The products received dardizing sizing for women's clothing. Over a two-year rave reviews. Within three months, the retail outlets had period, some 15,000 women were given full-body measure- sold over 90 percent of their inventories, quickly placing ments. This system created the sizing system that is still in orders for more products. use today. The founders, while excited about the prospect of Studies have found that the average body proportions sales growth, began to worry. Based on their estimates, of American women when the sizing charts were created the company would most probably experience a 50 percent are different from the body proportions of today's women. growth rate, compared to the 25 percent they had experiSpecifically, American women in 1939 were markedly enced over the past two years. They knew that if they were more slender and shorter. The result is that it is difficult for to avoid cash flow problems from the anticipated growth, some women to find clothing that fits well. In the Septem- they needed to anticipate the asset requirements and addiber2009issueofFashionistaMagazine,Jantz,whostandstionalfinancingthatwouldberequiredtosustaintheirsixfeettall,said:business. business. The owners believed they would need to purchase To meet the firm's financing needs, Palmer has negoti- payable and other current liabilities should increase proated a line of eredit (short-term debt) with Amway Bank portionally with sales increases. for up to $100,000. The bank has also agreed to loan the Finally, Jantz and Palmer are willing to provide more firm $150,000 for purchasing new equipment; this is to be of their own money in the form of equity up to a total repaid over five years. The principal on the latter loan is to of $100,000 in equity if needed. They will also lower the be repaid in $30,000 annual payments, with interest pay- amount of dividends they have been paying themselves ments being made on the remaining balance of the note. (about 40 percent of earnings over the past two years). Both notes will carry a 5 percent interest rate. The short- They both have decided to limit their dividends individuterm notes payable and long-term debt owed in 2013 will ally to $15,000, or a total of $30,000. be reduced by $50,000 and $30,000, respectively. Accounts Ashley Palmer Clothing, Inc. Balance Sheets for tho Years Endinn Decemher 31.2011.2012. and 2012 (enntinad) stionsintheassumptionsthatJantzandPalmerhaveexceed55percent,cantheownersexpecttobeabletcencesheetfor2014.Assumethatthelineofcreditidedbythebankwillbeneededforthefullyear.gthefinancialratiospresentedinChapter10,pareAshleyPalmersratiosovertime,includingtheproformaratiosfor2014.Ifthebankrequiresacurrentratioofatleast1.5andadebtrationottohonorthesecovenants?3.Prepareastatementofcashflowsfor2013andthe2014projections.Whatdidyoulearnfromthesestatements