Industry Averages

Current Ratio $3\mathrm{.}13$x

Quick Ratio $1\mathrm{.}71$x

Cash Ratio $0\mathrm{.}75$x

Parts inventory days $($avg$)30\mathrm{.}85$ days

WIP inventory days $($avg$)14\mathrm{.}57$ days

FG inventory days $($avg$)33\mathrm{.}13$ days

Accounts receivable days $($avg$)31\mathrm{.}83$ days

Accounts payable days $($avg$)23\mathrm{.}96$ days

Cash conversion cycle $86\mathrm{.}43$ days

Fixed assets turnover $2\mathrm{.}51$x

Total assets turnover $1\mathrm{.}33$x

Debt ratio $43\mathrm{.}9\%$

Long$-$term debt total capitalization $36\mathrm{.}2\%$

Times interest earned $6\mathrm{.}69$x

Cash flow coverage $3\mathrm{.}35$x

Gross profit margin $40\mathrm{.}66\%$

Operating profit margin $9\mathrm{.}90\%$

Net profit margin $5\mathrm{.}94\%$

Return on assets $7\mathrm{.}90\%$

Return on equity $14\mathrm{.}07\%$

Industry Avg. Income Statement $2022$

Sales $100\mathrm{.}00\%$

Cost of sales $59\mathrm{.}34\%$

Gross profit $40\mathrm{.}66\%$

Operating costs

Selling and distribution $12\mathrm{.}46\%$

Research and development $8\mathrm{.}02\%$

Administration $4\mathrm{.}83\%$

Depreciation $5\mathrm{.}45\%$

Operating profit $9\mathrm{.}90\%$

Interest $1\mathrm{.}48\%$

Earnings before taxes $8\mathrm{.}42\%$

Taxes $2\mathrm{.}48\%$

Net income $5\mathrm{.}94\%$

Industry Avg. Balance Sheet $2022$

Cash $8\mathrm{.}96\%$

Accounts receivable $11\mathrm{.}60\%$

Parts inventory $6\mathrm{.}67\%$

WIP inventory $3\mathrm{.}15\%$

Finished goods inventory $7\mathrm{.}16\%$

Total current assets $37\mathrm{.}54\%$

Land, plant $,$ and equipment, net $53\mathrm{.}70\%$

Other assets $8\mathrm{.}76\%$

Total assets $100\mathrm{.}00\%$

Accounts payable $5\mathrm{.}18\%$

Current portion of long$-$term debt $6\mathrm{.}81\%$

Total current liabilities $11\mathrm{.}99\%$

Long$-$term debt $31\mathrm{.}89\%$

Shareholders' equity $56\mathrm{.}12\%$

Total liabilities and equities $100\mathrm{.}00$

Operations

In order to expand sales, PGI has kept its prices constant over the last five years for water turbines. Wind turbine prices were decreased in $2020$ only in order to incentivize customer business during covid; this was reversed in $2021.$ Only solar turbines had annual price increases. By comparison, competitors have increased prices annually.

PGI also offers its distributors terms of $2/10,$ net $30,$ which vary from the industry standard of net $30.$ Most distributors took advantage of these terms over the past five years.

PGI designs and assembles its products in Canada but sources its components globally. As a precautionary measure, to guard against supply interruptions caused by strikes, material shortages, and transportation delays, it stockpiles many of its key parts. Its accounts payable relate primarily to inventory purchases. Industry standard credit terms are $3/15,$ net $60$ and most suppliers charge interest of $10$ percent per annum on any overdue accounts.

In order to remain competitive with low$-$wage countries, PGI invested heavily in factory automation, but has had difficulties with many of the complex systems. Breakdowns and software $$bugs$$ are common place as most of the equipment was bought from a low$-$cost supplier, which has since gone bankrupt. Low educational standards also made training difficult and lowered production efficiency. It was thought automation would allow the company to reduce finished goods inventory though just$-$in$-$time production, but the frequent breakdowns made it necessary to carry more stock.

To accommodate company growth, PGI built a new corporate headquarters, R&D facility and distribution centre in $2019.$ A number of existing buildings were considered, but a new facility in an expensive area of Toronto was constructed to increase the profile of the company.

PGI has not paid any dividends to date. Debt had already increased significantly due to growth and the new facilities, and was then compounded due to the collapse of revenues. Since $2020,$ management had to bear down and managed to improve the levels of debt. Terms loans and mortgages were negotiated with five different banks to diversify its funding sources. PGI is listed on the Toronto and New York Stock Exchanges and is considering going to the market to raise more equity through a secondary offering. To avoid losing control, the three founding shareholders have agreed to issue only non$-$voting common shares, but is appears the market has lost its appetite for this type of security. PGI maintains a $$1,500,000$ line of credit with Western Canadian Bank to finance seasonal variations in net working capital. The loan must be $200$ percent secured by inventory and accounts receivable. Also, to comply with the different loan agreements, the following ratios must be maintained:

$$ The current ratio must be kept above $2\mathrm{.}5$;

$$ the long$-$term debt to total capitalization, measured as long$-$term debt $/($long$-$term debt $+$ equity$),$ must remain below $50$ percent; and

$$ the cash flow coverage ratio, measured as EBITDA $/($EBITDA $/($Interest $+$ Current Portion of LT Debt$)$ above $2\mathrm{.}0.$