CASE 51 - SAFE PACKAGING COMPANY Financial Analysis and Forecasting Questions

1. Complete the 1995 columns of Tables 3 through 6, disregarding for now the projected data in the 1996 and 1997 columns.

2. Based on the information in the case and on the results of your calculations in Question 1, list Safe's strengths and weaknesses. In essence, you should look at the common size statements and each group of key ratios (for example, the leverage ratios) and see what those ratios indicate about the company's operations and financial condition. As a part of your answer, use the "Decomposition of Profitability" concept to highlight the key relationships.

3. Now complete the tables to develop pro forma financial statements for 1996 and 1997. In making these calculations, assume the bank is willing to maintain the present credit lines and to grant the requested additional $12,750,000 of short-term credit effective January 1, 1996. In the analysis, take account of the amounts of inventory and accounts receivable that would be carried if inventory utilization (based on the cost of goods sold) and days sales outstanding were set at industry-average levels. Also, assume in your forecast that all of Safe's plans and predictions concerning sales and expenses materialize, and that the firm pays no cash dividends during the forecast period. Finally, in your calculations use the cash and marketable securities account as the residual balancing figure. (This has already been done for you in the Excel spreadsheets.)