Need Questions 3 and 4 answered in-depth thanks !! not question one or two

in future Bigger Isn't Always Better! need to improve finances strong sales expect to : o I need bank loan for expansion Andre Pires opened his automobile parts store, Quickfix Auto Parts, five years ago, in a mid-sized city located in the mid-western region of the United States. Having worked for an automobile dealership, first as a technician, and later as the parts department manager, for over 15 years, Andre had learned the many nuances of the fiercely competitive. automobile servicing business. He had developed many contacts with dealers and service technicians, which came in really handy when establishing his own retail store. Business had picked up significantly well over the years, and as a result, Andre had more than doubled his store size by the third year of operations. The industry and local forecasts for the next few years were very good and Andre was confident that his sales would keep growing at or above recent levels. However, Andre had used up most of his available funds in expanding the business and was well aware that future growth would have to be funded with external sources of funds. What was worrying 6 Case 2 Bigger Isn't Always Better! Andre was the fact that over the past two years, the store's net income figures had been negative, and his cash flow situation had gotten pretty weak (See Tables 1 and 2). He figured that he had better take a good look at his firm's financial situation and improve it, if possible, before his suppliers found out. He knew fully well that being shut out by suppliers would be disastrous! Andre's knowledge of finance and accounting, not unlike many small businessmen's, was very limited. He had often entertained the thought of taking some financial management courses, but could never find the time. One day, at his weekly bridge session, he happened to mention his problem to Tom Andrews, his long time friend and bridge partner. Tom had often given him good advice in the past and Andre was desperate for a solution. "I'm no finance expert, Andre," said Tom, but you might want to contact the finance department at our local university's business school and see if you can hire an MBA student as an intern. These students can often be very insightful, you know." That's exactly what Andre did. Within a week he was able to recruit Juan Plexo, a second semester MBA student, who had an undergraduate degree in Accountancy and was interested in concentrating in Finance. When Juan started his internship, Andre explained exactly what his concerns were. "I'm going to have to raise funds for future growth, and given my recent profit situation, the prospects look pretty bleak. I can't seem to put my finger on the exact cause. The bank's commercial loan committee is going to want some pretty convincing arguments as to why they should grant me the loan. I need to put some. concrete remedial measures in place, and was hoping that you can help sort things out, Juan," said Andre. "I think I may have bitten off more than I can currently chew." Quickfix Autoparts Balance Sheets ASSETS 2000 2001 2002 2003 2004 Cash and marketable securities Accounts receivable Inventory $155,000 10,000 $309,099) 12,000 270,000 $75,948 20.000 500.000 $28,826 77,653 $18,425 90,078 560,000 250,000 520.000 Current assets $415,000 $591,099 $595,948 $626.480 $668,503 Land, buildings, plant, and equipment Accumulated depreciation Net fixed assets $250,000 (25,000) $250,000 $500,000 $500,000 $500,000 (50,000) (100,000) (150,000) (200,000) $200,000 $400,000 $350,000 $300,000 $225,000 Total assets $640,000 $791,099 $995,948 $976,480 $968,503 LIABILITIES AND EQUITIES Short-term bank loans Accounts payable Accruals $148.000 $50,000 10,000 5,000 $145,000 10,506 5,100 $140,000 19,998 7,331 $148,000 15,995 16,795 11,626 9,301 Current liabilities $65,000 $160,606 $167,329 $173,296 $176,421 $183,000 Long-term bank loans Mortgage Long-term debt $63,366 175,000 $98.000 173.000 $196,000 $190,000 271,000 268,000 264,000 $238,366 $271,000 $467,000 $458,000 $447,000 Total liabilities $303,366 $431,606 $634,329 $631,296 $623.421 Common stock (100,000 shares) Retained earnings $320,000 16,634 $320,000 39,493 $320,000 $320,000 41.619 25.184 $320.000 25,082 Total equity $336,634 $359.493 $361,619 $345,1841 $345,082 Total abilities and equity $640,000 $791,099 $995,948) $976,480 $968,503 I able 2 Quickfix Autoparts Income Statements 2000 2001 2002 2003 2004 Costrowth $600,000 480,000 $120,000 20% $30,000 25,000 Net sales goods sold Gross profit in argin Admin and selling exp Depreciation Miscellaneous expenses $655 999 $780 990 $873,600 $1,013,376 337.100 655200 742.560 861970 $117,900 $124,800 $131,040 $152,096 7577 $15,345 $16.887 $43,6801 $40,555 25,000 50,000 50.000 50,000 3,557 5,725 17.4721 15,201 1590 76% 2.027 Total operating exp $57,027 $43,902 $72,606 $111.152 $105.736 EBIT $62,973 $73,998 $52,194 $19,888 $46,271 $15,000 8,000 12.250 $15.950 7,840 $14.000 15,680 18,970 $13,320 15.200 18.760 $13,320 14,640 18,480 12,110 Interest on ST loans Interest on LT loans Interest on mortgage Total interest Before-tax earnings Taxes $35,250 $35,900 $48,650 $47,280 $46,440 $38.098 $27.723 11,089 $3,544 ($27,392) 1.418 (10,957) ($169) (68) 15,239 $16,634) $22,859 $2,126 ($16.435) ($102) Net income CE Dividends on stock 41,634 47, 55g 52,126 33,565 49, 896 Addition to retained earnings $16,634 $22.859 $2.126 ($16,435) ($102) EPS (100,000 shares) $0.17 $0.23 $0.02 ($0.16) (50.00) 1. How does Quickfix's average compound growth rate in sales compare with its earnings growth rate over the past five years? 2. Which statements should Juan refer to and which ones should he construct so as to develop a fair assessment of the firm's financial condition? Explain why? 1. What calculations should Juan do in order to get a good grasp of what is going on with Quickfix's performance? 14. Juan knows that he should compare Quickfix's condition with an appropriate benchmark. How should he go about obtaining the necessary comparison data? in future Bigger Isn't Always Better! need to improve finances strong sales expect to : o I need bank loan for expansion Andre Pires opened his automobile parts store, Quickfix Auto Parts, five years ago, in a mid-sized city located in the mid-western region of the United States. Having worked for an automobile dealership, first as a technician, and later as the parts department manager, for over 15 years, Andre had learned the many nuances of the fiercely competitive. automobile servicing business. He had developed many contacts with dealers and service technicians, which came in really handy when establishing his own retail store. Business had picked up significantly well over the years, and as a result, Andre had more than doubled his store size by the third year of operations. The industry and local forecasts for the next few years were very good and Andre was confident that his sales would keep growing at or above recent levels. However, Andre had used up most of his available funds in expanding the business and was well aware that future growth would have to be funded with external sources of funds. What was worrying 6 Case 2 Bigger Isn't Always Better! Andre was the fact that over the past two years, the store's net income figures had been negative, and his cash flow situation had gotten pretty weak (See Tables 1 and 2). He figured that he had better take a good look at his firm's financial situation and improve it, if possible, before his suppliers found out. He knew fully well that being shut out by suppliers would be disastrous! Andre's knowledge of finance and accounting, not unlike many small businessmen's, was very limited. He had often entertained the thought of taking some financial management courses, but could never find the time. One day, at his weekly bridge session, he happened to mention his problem to Tom Andrews, his long time friend and bridge partner. Tom had often given him good advice in the past and Andre was desperate for a solution. "I'm no finance expert, Andre," said Tom, but you might want to contact the finance department at our local university's business school and see if you can hire an MBA student as an intern. These students can often be very insightful, you know." That's exactly what Andre did. Within a week he was able to recruit Juan Plexo, a second semester MBA student, who had an undergraduate degree in Accountancy and was interested in concentrating in Finance. When Juan started his internship, Andre explained exactly what his concerns were. "I'm going to have to raise funds for future growth, and given my recent profit situation, the prospects look pretty bleak. I can't seem to put my finger on the exact cause. The bank's commercial loan committee is going to want some pretty convincing arguments as to why they should grant me the loan. I need to put some. concrete remedial measures in place, and was hoping that you can help sort things out, Juan," said Andre. "I think I may have bitten off more than I can currently chew." Quickfix Autoparts Balance Sheets ASSETS 2000 2001 2002 2003 2004 Cash and marketable securities Accounts receivable Inventory $155,000 10,000 $309,099) 12,000 270,000 $75,948 20.000 500.000 $28,826 77,653 $18,425 90,078 560,000 250,000 520.000 Current assets $415,000 $591,099 $595,948 $626.480 $668,503 Land, buildings, plant, and equipment Accumulated depreciation Net fixed assets $250,000 (25,000) $250,000 $500,000 $500,000 $500,000 (50,000) (100,000) (150,000) (200,000) $200,000 $400,000 $350,000 $300,000 $225,000 Total assets $640,000 $791,099 $995,948 $976,480 $968,503 LIABILITIES AND EQUITIES Short-term bank loans Accounts payable Accruals $148.000 $50,000 10,000 5,000 $145,000 10,506 5,100 $140,000 19,998 7,331 $148,000 15,995 16,795 11,626 9,301 Current liabilities $65,000 $160,606 $167,329 $173,296 $176,421 $183,000 Long-term bank loans Mortgage Long-term debt $63,366 175,000 $98.000 173.000 $196,000 $190,000 271,000 268,000 264,000 $238,366 $271,000 $467,000 $458,000 $447,000 Total liabilities $303,366 $431,606 $634,329 $631,296 $623.421 Common stock (100,000 shares) Retained earnings $320,000 16,634 $320,000 39,493 $320,000 $320,000 41.619 25.184 $320.000 25,082 Total equity $336,634 $359.493 $361,619 $345,1841 $345,082 Total abilities and equity $640,000 $791,099 $995,948) $976,480 $968,503 I able 2 Quickfix Autoparts Income Statements 2000 2001 2002 2003 2004 Costrowth $600,000 480,000 $120,000 20% $30,000 25,000 Net sales goods sold Gross profit in argin Admin and selling exp Depreciation Miscellaneous expenses $655 999 $780 990 $873,600 $1,013,376 337.100 655200 742.560 861970 $117,900 $124,800 $131,040 $152,096 7577 $15,345 $16.887 $43,6801 $40,555 25,000 50,000 50.000 50,000 3,557 5,725 17.4721 15,201 1590 76% 2.027 Total operating exp $57,027 $43,902 $72,606 $111.152 $105.736 EBIT $62,973 $73,998 $52,194 $19,888 $46,271 $15,000 8,000 12.250 $15.950 7,840 $14.000 15,680 18,970 $13,320 15.200 18.760 $13,320 14,640 18,480 12,110 Interest on ST loans Interest on LT loans Interest on mortgage Total interest Before-tax earnings Taxes $35,250 $35,900 $48,650 $47,280 $46,440 $38.098 $27.723 11,089 $3,544 ($27,392) 1.418 (10,957) ($169) (68) 15,239 $16,634) $22,859 $2,126 ($16.435) ($102) Net income CE Dividends on stock 41,634 47, 55g 52,126 33,565 49, 896 Addition to retained earnings $16,634 $22.859 $2.126 ($16,435) ($102) EPS (100,000 shares) $0.17 $0.23 $0.02 ($0.16) (50.00) 1. How does Quickfix's average compound growth rate in sales compare with its earnings growth rate over the past five years? 2. Which statements should Juan refer to and which ones should he construct so as to develop a fair assessment of the firm's financial condition? Explain why? 1. What calculations should Juan do in order to get a good grasp of what is going on with Quickfix's performance? 14. Juan knows that he should compare Quickfix's condition with an appropriate benchmark. How should he go about obtaining the necessary comparison data