Case 2- Wizard Industries For the attached case study, calculate and describe what the ratios tell how the business operates. profit margin return on assets (investment) return on equity receivables turnover average collection period inventory turnover current ratio total asset turnover quick ratio debt to total assets times interest earned Which ratio(s) is most important and why? What is leveraging? Is there such thing as too much leveraging? Do companies need to leverage. Would you grant credit to the sales team?(Your answer must provide reasoning from KYC, KYT, and ratios. ). If you grant additional credit, what business product and why? If you have declined the sales team additional credit, why? What options would you offer them? You are the manager of a credit department. The sales team has presented a large order from a new purchaser, Wizard Industries. For approximately 12 years, Wizard has been installing security and water sprinkler systems in office buildings The salespeople have been well trained, as they have also presented you with the followin financial statements and industry ratios (from your files). In their report they note that sales have increased in the last two years due to Wizard's more aggressive selling approach The sales team is eager for you to grant credit to Wizard Industries. Of course, you must do a complete analysis noting any ratios that are cause for concern or require a further explanation What is your recommendation? Do you grant credit? WIZARD INDUSTRIES Income Statements Year Ended 20XX 20XW 20XV Sales (all on credit) $1.605.100 $1,841,300 $ 1.542.700 Cost of goods sold 1.258.900 1.397.400 1.174.800 Gross profit 346,200 443,900 367.900 Selling and administrative expense 265,650 256.850 294,200 Amortization 14.000 14.400 16.000 Operating pro 66.550 172.650 57.700 Interest expense 65.100 50.550 50.100 Earnings before taxes 1.450 122.100 7.600 Taxes 350 27.100 2.200 Earnings available to common shareholders $ 1.100 $ 95,000 5.400 Dividends declared $ 70,000 $ 65,000 $ 60,000 WEARD INDUSTRIES Het Dec 31, ZOXX ZOW ZONY Aus Ch 5 14.900 $24.700 S 11.500 7.000 7.000 7.000 ML100 410.00 297.300 2:56.500 330.000 289.900 Marketable securities Accounts receivable Inventory Prepaid expenses Total current sets Net plant and equipment Goodwill 5200 100 5.500 694.500 724.300 611.200 362.000 172.900 184,300 75 400 30-600 Total 28.200 5925.400 3381.900 3825100 Liabilities and Shareholders' Equity $145.900 Accounts payable $196,700 $209,700 Bank loan 254,000 202.000 169.000 3,700 23.700 14.400 403.600 422.400 393.100 225,800 181.600 141.000 629.400 604.000 534.100 Accrued expenses Total current liabilities Long-term debt Total liabilities Common stock Retained earnings Total shareholders' equity Total liabilities and shareholders' equity 14.000 14.000 14.000 238,500 307 400 278,000 252 500 321,400 292.000 $881.900 $925.400 $826,100
