Mark X Company Financial Analysis and Forecasting Mark X Company manufactures farm and specialty trailers of all types. More than 85% of the company's sales come from the western part of the United States, particularly California, although a growing market for custom horse transport vans designed and produced by Mark X is developing nationally and even internationally. Also, several major boat companies in California and Washington State have had Mark X design and manufacture trailers for their nevw models, and those boat trailer "packages" are sold through the boat companies' nationwide Steve Wing, the president of Mark X, recently received a call from Karen Dennison, senior vice president of Wells Fargo Bank. Karen told Steve that a deficiency report generated by the bank's computerized analysis system had been filed because of Mark Xs deteriorating financial position. The bank requires quarterly financial statements from each of its loan customers. Information from such statements is fed into the computer, which then calculates key ratios for each customer and charts trends in these ratios. The system also compares statistics and metrics for each company with the average ratios of other firms in the same industry and against any protective covenants in the loan agreements. If any ratio is significantly worse than the industry average, reflects a marked adverse trend, or fails to meet contractual The latest deficiency report on Mark X revealed a number of significant adverse trends and several potentially serious problems (see tables 1 through 6 for Mark X historical financial statements). Particularly disturbing were the 2015 current, quick and debt ratios, all of which failed to meet the contractual commitments of 20, 10 and 55% respectively. Technically the bank had a legal right to call all the loans it had extended to Mark X for immediate repayment and, if the loans were not repaid within 10 days, to force the company into bankruptcy. Karen hoped to avoid calling the loans if possible, as she knew that this would create a problem that Mark X could not survive. Still, her own bank's examiners had recently become highly sensitive to problem loans, because of the increased number of bank failures due to the financial crises in recent years. This forced regulators to be stricter in their examinations of bank loan portfolios and to demand earlier identification of potential repayment problems. To keep Mark X's loan from becoming reclassified as a problem loan", the Senior Loan Committee will require strong and convincing evidence that the company's present difficulties are only temporary. Therefore, it must be shown that appropriate actions to overcome the problems have been taken and that the chances of reversing the adverse trends are realistically good. Karen now has the task of collecting the necessary information, evaluating its The financial crises that plagued the US economy since 2009 had caused severe, though hopefully temporary, for companies like Mark x Farm commodity prices have remained low thus farmers have held their investments in new equipment to the bare minimum. On top of this, a luxury tax, imposed recently has had a disastrous effect on top-of-the-line boat/trailer sales. Finally, the last Tax Reform Act reduced many of the tax benefits associated with horse breeding, leading to a drastic curtailment of demand for new horse transport vans. In light of the softening demand, Mark X had aggressively reduced prices in 2014 and 2015 to stimulate sales. This, the company believed, would allow it to realize greater economies of scale in production and to bring the learning curve down to a lower cost position. MarkX's management had full confidence that national economic policies would revive the ailing economy and that the downturn in demand would be only a short term problem. Consequently production continued unabated, and inventories increased sharply In an effort to reduce inventory, Mark X relaxed its credit standards in early 2014 and improved its already favorable credit terms. As a result, sales growth did remain high by industry standards through the third quarter of 2015, but not high enough to keep inventories from continuing to rise. Further, the credit policy changes had caused accounts receivable to increase dramatically by late 2015 To finance its rising inventories and receivables, Mark X turned to the bank for a long term loan in 2014 and also increased its short term credit lines in both 2014 and 2015. However, this expanded credit was insufficient to cover the asset expansion, so the company began to delay payments of its accounts payable until the second late notice had been received. Management realized that this was not a particularly wise decision for the long run, but they did not think it would be necessary to follow the policy for very long. They predicted that the national economy would pull out of the weak growth scenario in late 2015. Also, there has been talk in Congress of killing the luxury tax and giving back some of the tax benefits to horse breeders. Thus, the company was optimistic that its stable and profitable markets of the past would soon reappear After Karen's telephone call, and the subsequent receipt of a copy of the bank's financial analysis of Mark X, Steve began to realize just how precarious his company's financial position had become. As he started to reflect on what could be done to correct the problems, it suddenly dawned on him that the company was in even more trouble than the bank imagined. Steve had recently signed a firm contract for a plant expansion that would require an additional $6,375,000 of capital during the first quarter of 2016, and he had planned to obtain this money with a short term loan from the bank to be repaid from profits expected in the last half of 2016 as a result of the expansion. In his view, once the new production facility went on line, the company would be able to increase output in several segments of the trailer market. It might have been possible to cut back on the expansion plans and to retrench, but because of the signed construction contracts and the cancellation charges that would be imposed if the plans were cancelled, Steve correctly regards the $6,375,000 of new capital as being essential for Mark X's survival. Steve quickly called his senior management team in for a meeting, explained the situation, and asked for their help in formulating a solution. The group concluded that if the company's current business plan were carried out, Mark X's sales would increase by 10% from 2015 to 2016 and by another 15% from 2016 to 2017, Further, they concluded that Mark X should reverse its recent policy of aggressive pricing and easy credit, returning to pricing that fully covered costs plus normal profit margins and to standard industry credit practices. These changes should enable the company to reduce the cost of goods sold to from over 85% of sales in 2015 to about 82.5% in 2016 and then to 80% in 2017. Simlarly, the management group felt that the company could reduce administrative and selling expenses from almost 9% in 2015 to 8% in 2016 and to 7.5% in 2017, Significant cuts should also be possible in miscellaneous expenses, which should fall from 2.92% of 2015 sales to approximately 1.75% of sales in 2016 and to 1.25% in 2017. Further to appease suppliers, future bills would be paid more promptly, and, to convince the bank how serious management is about correcting the company's problems, cash dividends would be eliminated until the firm regains its financial health. Assume that Steve has hired you as a consultant to first verify then bank's evaluation of the company's current financial position and then to put together a forecast of Mark X's expected performance for 2016 and 2017. Steve asks you develop some figures that ignore the possibility of a reduction in the credit lines and to assume that the bank will increase the line of credit by the $6,375,000 needed for the expansion and supporting working capital. Also, you and Steve do not expect the level of interest rates to change substantially over the two year forecast period; however, you both think that the bank will charge 12% on both the additional short term loan if it is granted, and on the existing short term loans, if they are extended. The assumed 40% combined federal and state tax rate should also hold for the two years. Finally, if the bank cooperates and if Steve is able to turn the company around, the P/E ratio should be 10 in 2016 and rise to 12 in 2017 Your first task is to construct a set of proforma financial statements that Steve and the rest of the Mark X management team can use to assess the company's position and also to convince Karen her bank's loan is safe, provided the bank will extend the firm's line of credit. Then you must present your projections, with recommendations for future action, to Mark X's management and to Karen. To prepare for your presentation, answer the following questions, keeping in mind that both the Mark X managers and particularly Karen, and possibly her bosses could ask you tough questions about your analysis and recommendations. (1) Identify the major objectives of the case. Consider the following: The environment .The assumptions Mark X made relative to credit policy and pricing The current year ratios Their assumptions on keeping inventory high Their assumptions that sales will increase The policy of delaying accounts payable The fact that Steve didn't appear to know the financial position . . That he committed to the expansion contract without knowledge of the current status (2) Complete the Tables 3-6 except the proforma statement (3) Based on the information in the case and on the results of your calculations from question 2, evaluate the key ratios (such as liquidity, debt utilization and profitability (4) Based on your analysis to this point (without the proforma statements) does it appear that the bank should lend the requested money to Mark X. Explain (5) Now go back and complete the proforma columns for 2016 and 2017. Assume the bank is willing to maintain the present credit lines and to grant the additional $6,375,000 of short term credit at the beginning of 2016. In your analysis, take into account the amounts of inventory and accounts receivable that would be carried if inventory utilization (based on the costs of goods sold) and days of sales outstanding were set at industry levels (Table 6). Also assume in your forecast that all of mark X's plans and predictions concerning sales and expenses materialize, and that the firm pays no cash dividends during the forecast period. Finally, use the cash and marketable securities account as the residual balancing figure. (6) On the basis of your analysis above, do you think Karen should recommend that the bank extend the existing short and long term loans and grant the additional $6,375,000 loan or should they demand immediate repayment of all existing loans. Explain (7) What other changes would you recommend to Steve such as policy changes, (8) How would your recommendations to the bank managers differ from your recommendations to Steve or would they be the same as those presented to Mark X Table 1 Historical &Proforma Balance Sheets ($ in thousands) 2013 2014 2015 Assets Cash/mkt sec Accounts Receivable Inventory Current assets Land/bldg/equip Accumulated Depr Net Fixed Assets Total Assets 5,149 $4,004 3,906 X0X 17,098 18,46229,357 x00ox 41481 55,495 79,922x0000x 17,761 20,100 22,87429,24930,128 129261 (4654 166941 L91171 L10.940 14,765 15446 161802013219186 55,94670,94196,12 X000X Liabilities and Equity Short term loans Accounts payable Accruals Current Liabilities Long term loans Mortgage Long term debt Total liabilities Common stock Retained earnings Total equity Total lib & Equity 5,100 10,508 s.100 2331 2.30 11.626 18,233 x000xx 1,98 15,99s 6795 13,395 20,70645,562 9,563 9,563 32,870 57,465 22,639 23,269 23,269 23,269 23,269 23,269 10.038 14802 15368 2XX3 XXX 5,946 0,941 96102 x000x Table 2 Historical & Proforma Income Statements S in thousands) 2014 2015 Net Sales 170,998 184,058195,732 XxxX 137684 1183XXX 33,314 12,790 15,34516,881 17,224XX0XX 1,594 Cost of goods sold 37,678 49,520 Gross profit Selling/Admin Depreciation Misc expense Total Operating Exp EBIT Interest (short term) Interest (long term) Interest (mortgage) Total Interest Earnings before tax Taxes Net Income Dividends Add to retained earnings 32,897 28,895 1,658 2,040 2,423 1,823 2.02 3.551 16,903 12,337 561 956 234 14,263 1,823 956 211 2,953 2,953 956 170 319 638 258 1215 1719904,098 15,688 10,586 1,259 21,953 6.275 4234 9,413 6.352 2.353 1588 7,060 504 40668,781 255 xox 4,764 567 Table 3 Common Size Balance Sheets 2013 2014 2015 Assets Cash/mkt sec Accounts Receivable Inventory Current assets Land/bldg/equip Accumulated Depr Net Fixed Assets Total Assets 9.2% 5.64% 4.06% 33.84 46.5648.55 73.61% 78.23% XXXX 31.75% 28.33% mx 26.39 2172 164 100% 100% Liabilities and Equity Short term loans Accounts payable Accruals Current Liabilities Long term loans Mortgage Long term debt Total liabilities Common stock Retained earnings 5.7% 12.09 6.15 2.19 7.19% 18.97 14.81 23.94% 29.19% 47.41% 11.39 13.48 40.47% 46.33% 59.80% 41.59 24.21 Total equity 59.53% 53.67% XXXX Total lib & Equity 100% Table 4 Common Size Income Statements 2013 2014 100.00% 82.18 XXX 17.82% xxx 2015 Net Sales Cost of goods sold Gross profit Selling/Admin Depreciation Misc expense Total Operating Exp EBIT Interest (short term) Interest (long term) Interest (mortgage) Total Interest Earnings before tax Taxes Net Income Dividends Add to retained earnings 100.00% 100.00% 19.48% 7.48 0.93 8.62 8.30 0.90 1.93 2.17 9.88 0.19 0.37 0.15 6.68 0.30 0.52 0.13 0.11 9.17 5.73 0.64 3.67 3.44 4.12 2.58 0.29 Table 5 Statement of Cash Flows 2014 2015 Cash Flow from Operations Sales Increase in receivables Cash Sales Cost of goods sold Increase in inventories Increase in accounts payable Increase in accruals Cash cost of goods Cash margin Selling and admin Misc expense Taxes Net Cash Flow from Operations (299) $184,658 195,732 183,294 151,761 14,095 3,472 1657 160 $22,837 15,345 3,557 166,837 13,630 9,492 16,881 5,725 Cash flow from investments s (2,339) Cash flow from Financing Increase in short term debt Increase in long term debt Repayment of mortgage Interest expense Dividends Net cash from financing Increase/decrease in cash $1,912 3,188 268 1,751 $13,133 261 2,990 $1,493 9,693 (1,145) Table 6 Historical & Proforma Ratio Analysis Industry Average Liquidity Ratios Current Ratio Quick Ratio Debt Ratios Debt Ratio 3.07 2.68 XX | XX XX 1.66 1.08 0.731.10 X00x 50.00% 40.47% 46.33 XX | XX 52.69 13.91 7.05 142Xx 638 7.70 Asset Ratios Inventory turnover cost 7.27 Inventory turnover sales 9.03 5.59 4.19xxxX00X Fixed asset turnover 1158 1196 12.10 10.69 12.91 5.70 7.00 12.00 .59 3.58 5.70 5.70 Total asset turnover 3.06 2.60 X0X 2.03 XX0X Days sales outstanding 36.00 35.99 53.99 Xx 32.00 Profitability Ratios Profit margin Gross profit margin 19.48 17.82 14.76 117.50 20.00 5.50% 3.44 0.39 18.00 Return on assets 6.82 8.95 XXCX Return on Equity 28.26 16.68 1.96 17.50 Mark X Company Financial Analysis and Forecasting Mark X Company manufactures farm and specialty trailers of all types. More than 85% of the company's sales come from the western part of the United States, particularly California, although a growing market for custom horse transport vans designed and produced by Mark X is developing nationally and even internationally. Also, several major boat companies in California and Washington State have had Mark X design and manufacture trailers for their nevw models, and those boat trailer "packages" are sold through the boat companies' nationwide Steve Wing, the president of Mark X, recently received a call from Karen Dennison, senior vice president of Wells Fargo Bank. Karen told Steve that a deficiency report generated by the bank's computerized analysis system had been filed because of Mark Xs deteriorating financial position. The bank requires quarterly financial statements from each of its loan customers. Information from such statements is fed into the computer, which then calculates key ratios for each customer and charts trends in these ratios. The system also compares statistics and metrics for each company with the average ratios of other firms in the same industry and against any protective covenants in the loan agreements. If any ratio is significantly worse than the industry average, reflects a marked adverse trend, or fails to meet contractual The latest deficiency report on Mark X revealed a number of significant adverse trends and several potentially serious problems (see tables 1 through 6 for Mark X historical financial statements). Particularly disturbing were the 2015 current, quick and debt ratios, all of which failed to meet the contractual commitments of 20, 10 and 55% respectively. Technically the bank had a legal right to call all the loans it had extended to Mark X for immediate repayment and, if the loans were not repaid within 10 days, to force the company into bankruptcy. Karen hoped to avoid calling the loans if possible, as she knew that this would create a problem that Mark X could not survive. Still, her own bank's examiners had recently become highly sensitive to problem loans, because of the increased number of bank failures due to the financial crises in recent years. This forced regulators to be stricter in their examinations of bank loan portfolios and to demand earlier identification of potential repayment problems. To keep Mark X's loan from becoming reclassified as a problem loan", the Senior Loan Committee will require strong and convincing evidence that the company's present difficulties are only temporary. Therefore, it must be shown that appropriate actions to overcome the problems have been taken and that the chances of reversing the adverse trends are realistically good. Karen now has the task of collecting the necessary information, evaluating its The financial crises that plagued the US economy since 2009 had caused severe, though hopefully temporary, for companies like Mark x Farm commodity prices have remained low thus farmers have held their investments in new equipment to the bare minimum. On top of this, a luxury tax, imposed recently has had a disastrous effect on top-of-the-line boat/trailer sales. Finally, the last Tax Reform Act reduced many of the tax benefits associated with horse breeding, leading to a drastic curtailment of demand for new horse transport vans. In light of the softening demand, Mark X had aggressively reduced prices in 2014 and 2015 to stimulate sales. This, the company believed, would allow it to realize greater economies of scale in production and to bring the learning curve down to a lower cost position. MarkX's management had full confidence that national economic policies would revive the ailing economy and that the downturn in demand would be only a short term problem. Consequently production continued unabated, and inventories increased sharply In an effort to reduce inventory, Mark X relaxed its credit standards in early 2014 and improved its already favorable credit terms. As a result, sales growth did remain high by industry standards through the third quarter of 2015, but not high enough to keep inventories from continuing to rise. Further, the credit policy changes had caused accounts receivable to increase dramatically by late 2015 To finance its rising inventories and receivables, Mark X turned to the bank for a long term loan in 2014 and also increased its short term credit lines in both 2014 and 2015. However, this expanded credit was insufficient to cover the asset expansion, so the company began to delay payments of its accounts payable until the second late notice had been received. Management realized that this was not a particularly wise decision for the long run, but they did not think it would be necessary to follow the policy for very long. They predicted that the national economy would pull out of the weak growth scenario in late 2015. Also, there has been talk in Congress of killing the luxury tax and giving back some of the tax benefits to horse breeders. Thus, the company was optimistic that its stable and profitable markets of the past would soon reappear After Karen's telephone call, and the subsequent receipt of a copy of the bank's financial analysis of Mark X, Steve began to realize just how precarious his company's financial position had become. As he started to reflect on what could be done to correct the problems, it suddenly dawned on him that the company was in even more trouble than the bank imagined. Steve had recently signed a firm contract for a plant expansion that would require an additional $6,375,000 of capital during the first quarter of 2016, and he had planned to obtain this money with a short term loan from the bank to be repaid from profits expected in the last half of 2016 as a result of the expansion. In his view, once the new production facility went on line, the company would be able to increase output in several segments of the trailer market. It might have been possible to cut back on the expansion plans and to retrench, but because of the signed construction contracts and the cancellation charges that would be imposed if the plans were cancelled, Steve correctly regards the $6,375,000 of new capital as being essential for Mark X's survival. Steve quickly called his senior management team in for a meeting, explained the situation, and asked for their help in formulating a solution. The group concluded that if the company's current business plan were carried out, Mark X's sales would increase by 10% from 2015 to 2016 and by another 15% from 2016 to 2017, Further, they concluded that Mark X should reverse its recent policy of aggressive pricing and easy credit, returning to pricing that fully covered costs plus normal profit margins and to standard industry credit practices. These changes should enable the company to reduce the cost of goods sold to from over 85% of sales in 2015 to about 82.5% in 2016 and then to 80% in 2017. Simlarly, the management group felt that the company could reduce administrative and selling expenses from almost 9% in 2015 to 8% in 2016 and to 7.5% in 2017, Significant cuts should also be possible in miscellaneous expenses, which should fall from 2.92% of 2015 sales to approximately 1.75% of sales in 2016 and to 1.25% in 2017. Further to appease suppliers, future bills would be paid more promptly, and, to convince the bank how serious management is about correcting the company's problems, cash dividends would be eliminated until the firm regains its financial health. Assume that Steve has hired you as a consultant to first verify then bank's evaluation of the company's current financial position and then to put together a forecast of Mark X's expected performance for 2016 and 2017. Steve asks you develop some figures that ignore the possibility of a reduction in the credit lines and to assume that the bank will increase the line of credit by the $6,375,000 needed for the expansion and supporting working capital. Also, you and Steve do not expect the level of interest rates to change substantially over the two year forecast period; however, you both think that the bank will charge 12% on both the additional short term loan if it is granted, and on the existing short term loans, if they are extended. The assumed 40% combined federal and state tax rate should also hold for the two years. Finally, if the bank cooperates and if Steve is able to turn the company around, the P/E ratio should be 10 in 2016 and rise to 12 in 2017 Your first task is to construct a set of proforma financial statements that Steve and the rest of the Mark X management team can use to assess the company's position and also to convince Karen her bank's loan is safe, provided the bank will extend the firm's line of credit. Then you must present your projections, with recommendations for future action, to Mark X's management and to Karen. To prepare for your presentation, answer the following questions, keeping in mind that both the Mark X managers and particularly Karen, and possibly her bosses could ask you tough questions about your analysis and recommendations. (1) Identify the major objectives of the case. Consider the following: The environment .The assumptions Mark X made relative to credit policy and pricing The current year ratios Their assumptions on keeping inventory high Their assumptions that sales will increase The policy of delaying accounts payable The fact that Steve didn't appear to know the financial position . . That he committed to the expansion contract without knowledge of the current status (2) Complete the Tables 3-6 except the proforma statement (3) Based on the information in the case and on the results of your calculations from question 2, evaluate the key ratios (such as liquidity, debt utilization and profitability (4) Based on your analysis to this point (without the proforma statements) does it appear that the bank should lend the requested money to Mark X. Explain (5) Now go back and complete the proforma columns for 2016 and 2017. Assume the bank is willing to maintain the present credit lines and to grant the additional $6,375,000 of short term credit at the beginning of 2016. In your analysis, take into account the amounts of inventory and accounts receivable that would be carried if inventory utilization (based on the costs of goods sold) and days of sales outstanding were set at industry levels (Table 6). Also assume in your forecast that all of mark X's plans and predictions concerning sales and expenses materialize, and that the firm pays no cash dividends during the forecast period. Finally, use the cash and marketable securities account as the residual balancing figure. (6) On the basis of your analysis above, do you think Karen should recommend that the bank extend the existing short and long term loans and grant the additional $6,375,000 loan or should they demand immediate repayment of all existing loans. Explain (7) What other changes would you recommend to Steve such as policy changes, (8) How would your recommendations to the bank managers differ from your recommendations to Steve or would they be the same as those presented to Mark X Table 1 Historical &Proforma Balance Sheets ($ in thousands) 2013 2014 2015 Assets Cash/mkt sec Accounts Receivable Inventory Current assets Land/bldg/equip Accumulated Depr Net Fixed Assets Total Assets 5,149 $4,004 3,906 X0X 17,098 18,46229,357 x00ox 41481 55,495 79,922x0000x 17,761 20,100 22,87429,24930,128 129261 (4654 166941 L91171 L10.940 14,765 15446 161802013219186 55,94670,94196,12 X000X Liabilities and Equity Short term loans Accounts payable Accruals Current Liabilities Long term loans Mortgage Long term debt Total liabilities Common stock Retained earnings Total equity Total lib & Equity 5,100 10,508 s.100 2331 2.30 11.626 18,233 x000xx 1,98 15,99s 6795 13,395 20,70645,562 9,563 9,563 32,870 57,465 22,639 23,269 23,269 23,269 23,269 23,269 10.038 14802 15368 2XX3 XXX 5,946 0,941 96102 x000x Table 2 Historical & Proforma Income Statements S in thousands) 2014 2015 Net Sales 170,998 184,058195,732 XxxX 137684 1183XXX 33,314 12,790 15,34516,881 17,224XX0XX 1,594 Cost of goods sold 37,678 49,520 Gross profit Selling/Admin Depreciation Misc expense Total Operating Exp EBIT Interest (short term) Interest (long term) Interest (mortgage) Total Interest Earnings before tax Taxes Net Income Dividends Add to retained earnings 32,897 28,895 1,658 2,040 2,423 1,823 2.02 3.551 16,903 12,337 561 956 234 14,263 1,823 956 211 2,953 2,953 956 170 319 638 258 1215 1719904,098 15,688 10,586 1,259 21,953 6.275 4234 9,413 6.352 2.353 1588 7,060 504 40668,781 255 xox 4,764 567 Table 3 Common Size Balance Sheets 2013 2014 2015 Assets Cash/mkt sec Accounts Receivable Inventory Current assets Land/bldg/equip Accumulated Depr Net Fixed Assets Total Assets 9.2% 5.64% 4.06% 33.84 46.5648.55 73.61% 78.23% XXXX 31.75% 28.33% mx 26.39 2172 164 100% 100% Liabilities and Equity Short term loans Accounts payable Accruals Current Liabilities Long term loans Mortgage Long term debt Total liabilities Common stock Retained earnings 5.7% 12.09 6.15 2.19 7.19% 18.97 14.81 23.94% 29.19% 47.41% 11.39 13.48 40.47% 46.33% 59.80% 41.59 24.21 Total equity 59.53% 53.67% XXXX Total lib & Equity 100% Table 4 Common Size Income Statements 2013 2014 100.00% 82.18 XXX 17.82% xxx 2015 Net Sales Cost of goods sold Gross profit Selling/Admin Depreciation Misc expense Total Operating Exp EBIT Interest (short term) Interest (long term) Interest (mortgage) Total Interest Earnings before tax Taxes Net Income Dividends Add to retained earnings 100.00% 100.00% 19.48% 7.48 0.93 8.62 8.30 0.90 1.93 2.17 9.88 0.19 0.37 0.15 6.68 0.30 0.52 0.13 0.11 9.17 5.73 0.64 3.67 3.44 4.12 2.58 0.29 Table 5 Statement of Cash Flows 2014 2015 Cash Flow from Operations Sales Increase in receivables Cash Sales Cost of goods sold Increase in inventories Increase in accounts payable Increase in accruals Cash cost of goods Cash margin Selling and admin Misc expense Taxes Net Cash Flow from Operations (299) $184,658 195,732 183,294 151,761 14,095 3,472 1657 160 $22,837 15,345 3,557 166,837 13,630 9,492 16,881 5,725 Cash flow from investments s (2,339) Cash flow from Financing Increase in short term debt Increase in long term debt Repayment of mortgage Interest expense Dividends Net cash from financing Increase/decrease in cash $1,912 3,188 268 1,751 $13,133 261 2,990 $1,493 9,693 (1,145) Table 6 Historical & Proforma Ratio Analysis Industry Average Liquidity Ratios Current Ratio Quick Ratio Debt Ratios Debt Ratio 3.07 2.68 XX | XX XX 1.66 1.08 0.731.10 X00x 50.00% 40.47% 46.33 XX | XX 52.69 13.91 7.05 142Xx 638 7.70 Asset Ratios Inventory turnover cost 7.27 Inventory turnover sales 9.03 5.59 4.19xxxX00X Fixed asset turnover 1158 1196 12.10 10.69 12.91 5.70 7.00 12.00 .59 3.58 5.70 5.70 Total asset turnover 3.06 2.60 X0X 2.03 XX0X Days sales outstanding 36.00 35.99 53.99 Xx 32.00 Profitability Ratios Profit margin Gross profit margin 19.48 17.82 14.76 117.50 20.00 5.50% 3.44 0.39 18.00 Return on assets 6.82 8.95 XXCX Return on Equity 28.26 16.68 1.96 17.50