STORM ARMADA Company specializes in customized software development for the broadcast and telecommunications industries. The company was started by three people to develop software primarily for a national network to be used in broadcasting national election results. After sustained and manageable growth for many years, the company has grown very fast over the last three years, doubling in size.

This growth has placed the company in a challenging financial position. Within 30 days, STORM ARMADA Company will need to renew its P300,000 loan with the bank of the Philippines islands. This loan is classified as a current liability on STORM ARMADA Company's balance sheet. Amara Sumi, president of STORM ARMADA Company is concerned about renewing the loan. The bank has requested STORM ARMADA Company's most recent financial statements which appear below, including balance sheets for this year and last year.

STORM ARMADA STATEMENT OF FINANCIAL POSITION

Financial statement of STORM ARMADA Company appear below:

STORM ARMADA Company

Statement of Financial Position

December 31, Year 2 and Year 1

(pesos in thousands)

Current Assets: Year 2 Year 1

Cash and marketable securities ....................................................P 100p 100

Accounts receivable, net ................................................................200190

Inventory .......................................................................................... 190180

Prepaid expenses .............................................................................._10_ 20

Total current assets ..........................................................................520490

Noncurrent assets:

Plant & equipment, net .............................................................1940_ 1940_

Total assets.................................................................................._2460__2460_

Current Liabilities:

Accounts Payable ........................................................................... p150p150

Total Liabilities.............................................................................9070

Notes Payable, short term ........................................................._ 100150

Total Current Liabilities ..........................................................................340370

Noncurrent Liabilities :

Bonds Payable ....................................................................... _310_300

Total Liabilities ............................................................................. 650650

Stockholders' Equity:

Preferred stock, P10 Par, 6% .............................................100100

Common Stock, P2 Par......................................................180180

Additional Paid-in capital - common stock ...................230230

Retained Earnings .............................................................._ 1300_1250

Total stockholders' Equity ................................................. 18101760

Total liabilities of stockholders' Equity ............................P 2460p 2430

Storm Armada Income Statement

STORM ARMADA Company

Income statement

For the Year Ended December 31, Year 2

(pesos in thousands)

Sales (all on account) ........................................................p 1,770

Cost of goods sold ................................................................1,230

Gross margin .......................................................................540

Operating expenses .........................................................._210_

Net operating Income ......................................................330

Interest expense ................................................................_30

Net Income before taxes .................................................300

Income Taxes (30%) ..........................................................___90

Net Income .......................................................................... p20

Required :

A.Give 2 limitations of financial statement analysis? Discuss briefly

B.Would you advise Bank of the Philippines islands to approve the renewal of the loan? Why? Explain by substantiating your answer

C.If you were asked to value the company as a prospective investor, identify the accounts, ratios, numbers, (etc)... you will use and explain how are you going to use them. What would you advise prospective investors?

D.Recommend at least 5 strategies / operating tactics to improve the company's cash conversion cycle

E.As of this point, do you think that the difference between market value and book value suggests that the stock at it's current price is too high? explain