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1. Calculate the 12 ratios for James Confectioners for this year.
2. How do the ratios that you calculated for this year compare to those that Ivey calculated for the company last year? What factors are most likely to account for those changes?
3. How do the ratios you calculated for this year compare to those of the typical company in the industry? Do you spot any areas that could cause the company problems in the future? Explain.
4. Develop a set of specific recommendations for improving the financial performance of James Confectioners using the analysis you conducted in questions 1 to 3.
5. What pricing recommendations can you make to Telford and Ivey James?
James Confectioners-Part 1 squeezed by Rising Costs, a Confectioner about the impact of the rapidly rising cost of the base choco- late, however. Bad weather in SouthAmerica and Africa, where Struggles to Cope most of the world's cocoa is grown, and a workers' strike dis- rupted the global supply of chocolate, sending prices upward. elford James and his wife, Ivey, are the second-generation There appears to be no relief from high chocolate prices in the owners of James Confectioners, a family-owned manufac- near future. The Intemational Cocoa Organization, an industry turer of premium chocolates that was started by Telford's trade association, forecasts world production of cocoa, from father, Frank, in 1964 in EauClaire, Wisconsin. Inits 50 years, which chocolate is made, to decline by 7.2 percent this year. James Confectioners has grown from its roots in a converted Escalating milk and sugar prices are squeezing the company's hardware store into a large modern factory with sophisti profit margins as well. Much to James andIvey's dismay, James cated production and quality control equipment. In the early Confectioners's long-term contracts with its chocolate suppliers days, all of Frank's customers were local shops and stores have run out, and the company is purchasing its raw materials but the company now supplies customers across the United under short-term, variable-price contracts. They are concerned States and a few in Canada. Telford and Ivey have built on about the impact these increases in cost will have on the com- the company's reputation as an honest, reliable supplier of pany's financial statements and on its long-term health. chocolates. The prices they charge for their chocolates are Ivey, who has the primary responsibility for managing above the industry average but are not anywhere near the James Confectioners's finances, has compiled the balance highest prices in the industry even though the company is sheet and the income statement for the fiscal year that just known for producing quality products. ended. The two financial statements appear below: Annual sales for the company have grown to $3.9 million, and its purchases of the base chocolate used as the raw ma terials for their products have increased from 25,000 pounds "Cocoa Forecasts,' International Cocoa Organization, May 27, 2009. 20 years ago to 150,000 pounds. The Jameses are concerned http://www.icco.org/about/press2.aspx?ld-0jil2056. Balance Sheet, James Confectioners December 31, 20xx Assets Current Assets Cash 161,254 Accounts Receivable 507,951 568,421 Inventory Supplies 84,658 Prepaid Expenses 32,251 Total Current Assets 1,354,536 Fixed Assets Land 104,815 Buildings, net 203,583 Autos, net 64,502 Equipment, net 247,928 40,314 Furniture and Fixtures, net Total Fixed Assets 661,142. $2,015,678 Total Assets Liabilities Current Liabilities Accounts Payable 241,88 Notes Payable 221,725 (continued)
