Balance Sheet	2015	2016	2017
Assets
Cash	807,000	628,000	612,000
Accounts Receivables	2,582,000	2,896,000	4,605,000
Inventories	2,870,000	5,181,000	7,319,000
Total Current Assets	6,259,000	8,705,000	12,536,000
Net Fixed Assets	2,216,000	2,423,000	5,538,000
Total Assets	8,475,000	11,128,000	15,074,000
Liabilities and Equity
Accounts Payable	961,000	1,648,000	3,137,000
Notes Payable	400,000	800,000	2,860,000
Accruals	440,000	800,000	1,150,000
Total Current Liabilities	1,801,000	3,248,000	7,147,000
Long Term Debt	1,350,000	1,908,000	1,867,000
Common Stock	3,650,000	3,650,000	3,650,000
Retained Earnings	1,674,000	2,322,000	2,410,000
Total Equity	5,324,000	5,972,000	6,060,000
Total Liabilities and Equity	8,475,000	11,128,000	15,074,000
Income Statement	2015	2016	2017
Sales	26,820,000	28,966,000	30,703,000
Cost of Sales	21,216,000	23,550,000	26,140,000
Gross Profit	5,604,000	5,416,000	4,563,000
Operating Expenses	2,574,000	3,225,000	3,866,000
Operating Profit	3,030,000	2,191,000	697,000
Interest	91,000	275,000	469,000
Earnings Before Taxes	2,939,000	1,916,000	228,000
Taxes (48%)	1,411,000	919,000	110,000
Net Income	1,528,000	997,000	118,000

1)

a.

Liquidity	2015	2016	2017	Average
Current Ratio	3.475	2.68	1.754	2.5x
Quick Ratio	1.882	1.085	0.73	1.0x
Asset Management
Average Collection Period	35.139	36.492	54.745	32.0 (days)
Inventory Turnover	7.392	4.545	3.572	7.0x Fixed
Asset Turnover	3.165	2.603	2.037	12
Debt Management
Total Debt to Total Assets	0.372	0.463	0.598	50.00%
Times Interest Earned	33.297	7.967	1.486	7.7x
Profitability
Profit Margin	0.057	0.034	0.004	2.90%
Return on Equity (ROE)	0.287	0.167	0.019	17.50%

ABC Company, a toy manufacturer, believes the coming holiday season (between Thanksgiving in late November and Christmas on the 25th of December) will be a very good one, expecting an increase of 20% in its sales. Outside economic analysts believe the effects of the recent recession are over. Consumer confidence is high. To meet that 20% increase, however, inventories must be built up so, to finance that expansion, ABC wants to borrow $1,000,000 from its bank.

You are the loan officer who must make the decision as to whether or not to give ABC the money. You are going to prepare ratios for 3 years, the Cash Conversion Cycle for the same period and operating cash flow for the years for which you have figures.

Review the Balance Sheets and Income Statements for ABC over the 3 years and answer the following questions (20 points each)

2) The Cash Conversion Cycle is an important management tool. a) Define the operating cycle. What does it tell us? b) Define the cash conversion cycle. What does it tell us? c) Calculate ABCs operating and cash conversion cycles for 3 years.

What do they tell you about ABCs cash management policies?

3) Operating Cash Flow is the first of the 3 parts to the Statement of Cash Flows.

a) Define operating cash flow. What does it tell us? b) Calculate ABCs operating cash flows for those years for which figures

are available. c) Does your analysis of ABCs operating cash flows change your conclusions listed in 1) and 2) above?

Please answer the questions in bold!!!