Average Joe's Gym

Objectives

• Identify the issues.
• Analyze the issues (qualitatively and quantitatively).
• Provide a recommendation and conclusion.
• Develop a formal response to the problem(s) posed in the case.
• Prepare the report. It is to include, organized and presented in a logical manner
• quantitative analyses;
• ratio analyses;
• qualitative analyses; and
• appropriate recommendations given the case facts and analyses completes.

Background

You are an Analyst for the professional service firm, BUSI 1043 LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. After 4 months on the job, you walk into the partner's office to provide him with your two week notice. Given your excellent performance over the past few months, rival professional service firm, BUSI 2083 LLP has provided you with an offer you cannot refuse by providing you with a promotion to Consultant and a significant raise. Although sad to see you go, lead partner Justin Medakiewicz requested assistance on one last engagement, Average Joe's Gym.

Additional Information

Average Joe's caters to families and gives a substantial discount for families to work out together. Families that workout together reach their goals together. Members receive 2 free training sessions with enrollment so that they may start reaching their goals as soon as they sign up. The exercise specialists that provide the training to the members hold the highest certification credentials and come from accredited universities with a specific degree focus in Exercise Science and or Health Education. The company has experienced significant growth in the past five years due to an increase in the popularity of health and fitness among social trends. As a result Average Joe's has applied to TD Bank for a $1 million long term loan in order to finance further expansion plans. Specifically, the funds would be used to purchase additional gym equipment.

Average Joe's application and financial statements have been provided by Lisa Jennings, a credit analyst with TD Bank. She would like BUSI 1043 to conduct a preliminary review of Average Joe's financial statements and determine whether Average Joe's should proceed further into a more detailed analysis. Lisa would like BUSI 1043 to document the recommendations and supporting analysis in a report that will be maintained by the bank.

Lisa: "Average Joe's has provided us with a copy of their most recent Balance Sheet and Income Statement (Exhibit I). I know this may not be enough to make the final decision, but it should be more than enough for you to get started."

You: "Yes, I can obtain much information from these two statements".

Lisa: "Okay, that's great. I took a quick look at the Balance Sheet and am wondering what has caused the change in cash. Cash is needed to payback the loan. Although I haven't done any rigorous analysis, it is a bit concerning to see the cash decline by such a large amount."

You: "I can definitely look into the decrease in cash."

Lisa: "It may also be useful to give some thought to what the Balance Sheet may look like if the loan is approved. Historical statements are fine, but they will not be able to provide you with this information. Additional information on the use of the loan is provided in Exhibit II."

You: "That is a great point. I will take this into consideration."

Lisa: "Alright. Let me know if I can be of any further assistance. I look forward to reading your report. If you recommend to proceed with further due diligence, can you prepare a list of additional information that would be useful in making our final decision?"

You: "Yes, I can most certainly do that. I will get started right away."

You are excited with this last assignment and want to leave BUSI 1043 with a good impression. You begin to conduct some preliminary research by requesting industry comparables from the bank. You have located various industry ratios that can be used as a benchmark (Exhibit III).

Required: Prepare the report.

Exhibit I: Financial Statements

Average Joe's Gm Statement of Financial Position MIIDEEEI Assets Gotta-It Cash Marketable Seourltles Accounls Iteeemble Intu'entvmr'yI Prepaid Etpertses Capital Property and Equlpmen't. net TOTAL ASSETS Lllhllities and Shareholders' Equlty Current \"counts Payable dreamed and lItttl'J'IeI' Liabllitles Current Portion of Long-Term Debt LongTenn Debt Shareholders Equl'j' common sham {50,050 outstanding] Retalned Earnings TOTAL HABILITIES MID MEHDLIJEIIS EutlT'r Average Joe's Gym Inceme Statement 301.4 235,355 H5355 223,455 525,225 12,555 1,552,555 1.355.550 3.50-1.30! 254,555 23?,5'95 315.9!\" 55?,\" 1.250.330 555,512 1,525,552 3.555.555 For the "rear Ended December 31H Sales cost ofsales Gross Prot Expenses mortizatron General and Administrative marketing and Sales Interest Expense Dfoe Expense Wages and Benets. Adn'llnlstrution Total Dperatinl Expenses Uperetlng lnoome Gian [losses] on marketable sewrltles Impairment loss on capital assets Inmme [E555] hetere taxes Provision or [benet from] Income tales I'll-It Income Openlng Balance - Retained Earnings NEIL II'IEIII'I'I! Dividends dosing Balance Retained Earnings 2515 2,525,555 $55555 1,552,555 155.455 134.555 2.25.555 25.525 255.555 315.555 1.153.455 453.555 25.425 5 455.555 154.131 344.555 255.555 551.555 25 1.525.555 2013 134.55!!! 451256 124,555 555,255 15,555 1.141.525 2.451.555 5.534.631 55,255 244.255 345.300 555.355 LWLSOO 555,512 555,553 5,554,531 2513 2.525.555 1.154.555 1,551,535 125.455 152.555 155.555 55.555 255.555 315.555 1.555.555 351.555 5.555 5 355.555 55.235 252.515 523.555 252.515 25 555 ?50.55