Triple A Office Mart Foremost in Burke's thinking was to maintain a sensible payout ratio for the equity investors, one which reflected the operational reality of the company. Firms that were similar in product line and sales pattern to Triple A paid a dividend which amounted to 30-60 percent of earnings. Growth in sales volume beyond the nominal growth in the economy usually came about as a result of market share being taken away from competitors. Triple A's management intended to survive in the region in which they operated. The relatively stable payout ratio which the company had maintained for several years seemed appropriate given revenue growth. In preparation for her meeting with the bank, Susan Burke had concerns about the financial condition of her firm and whether there was a trend in the financial statements that might cause the bank to become wary of Triple A as a continuing customer. For example, Susan wondered whether the firm's inventory level had increased at a rate that was harmful to the firm's liquidity position. It was important to convince the bank that the firm was well run and that all aspects of its operation indicated managerial consistency and skill. TABLE 1 Triple A Office Mart Income Statement (selected years) 1993 1994 1995 1996 Sales $3,800,000 $4,180,000 $4,850,000 $6,000,000 Cost of goods sold (2.460,000) (2,975,000) (3.200,000) (4.180.000) Gross profit $1,340,000 $1,205,000 $1,650,000 $1,820,000 Selling, admin, and depreciation expenses ($684,000) ($820,000) ($898,408) ($1,015,467) Interest (30.780) (30.780) (42,372) (35.313) Profit before tax $625,220 $354,220 $709,220 $769,220 Taxes (187.566) (106.266) (212.766) (230,766) Net income $437,654 $247,954 $496,454 $538,454 TABLE 2 Triple A Office Mart Balance Sheet Triple A Office Mart 1993 1994 1995 1996 Cash $295,000 $326,040 $378,300 $468,000 Accounts receivable 11,400 Inventory 950,000 12,540 1.028.595 20,700 18,000 1.559.407 1.735,207 Total current assets 1,256,400 1,367,175 1,958,407 2,221,207 Property, plant, equip. (net) 450.000 Total assets $1,706,400 501.600 $1,868,775 501,600 $2,460,007 503,000 $2,724,207 Accounts payable $152,000 $167,200 $190,000 $300,000 Notes payable - bank 289,776 113,326 Accrued wages & taxes 114,000 125,000 145,500 180.000 Total current liabilities 266,000 292,200 625,276 593,326 Long-term debt 342,200 342,000 342,000 342,000 Common stock (120,000 shares) 600,000 600,000 600,000 600,000 Retained earnings 498.200 634.575 892.731 1.188.881 Total liabilities and equity $1,706,400 $1,868,775 $2,460,007 $2,724,207 Asset Management Ratios 1993 1994 1995 1996 Year 0 Year 1 Year 2 Year 3 Asset Management Inventory Turnover 2.59 3.01 2.47 2.54 Days Sales Outstanding 1.10 1.10 1.56 1.10 Fixed Asset Turnover 8.44 8.33 9.67 11.93 Total Asset Turnover 2.23 2.24 1.97 2.20