Professional Documents
Culture Documents
1 What assumption did Mr. Fischer make when he prepared the forecasts
shown in case Exhibit 1 and 2? Were these assumptions reasonable?
2 Why was SureCut Shears unable to repay its bank loan by March 31, 1996, as originally f
Please make simple comparison of projected and actual income statement and balanced
3 Has SureCut's financial condition worsened sufficiently to cause Mr. Stewart any great co
Please compare actual and projected financial ratios (See Ehxibit S-2)
4 What are characteristics of SureCut's need for external finance? What is the timing
magnitude, and duration of the need? How certain are you of your forecast? Can the nee
for finance be avoided by deferring expenditures? How attractive is the firm at the time
5 Describe SureCut Shears in terms of its market, competitive and operating characteristic
How risky is SUreCut in operating and competitive terms?
6 Would you, as Mr. Stewart, agree to an extension of loan? Under what specific terms and
When will SureCut to repay the loan in full?
7 Compare the nature of the financial problems faced by SureCut Shears and Toy World.
e forecasts
Exhibit 1
Exhibit 1
Sales ($)
July
1995
Aug. Sept. Oct.
Nov.
Dec.
Jan.
Feb.
1996
Mar. Apr.
May
June
Total
30,135
30,000
18,081
900
720
900
18,000
300
300
300
3,600
21,600
(incl. depreciation
$130)
3,560
21,641
300
300
300
300
300
300
300
300
300
Gross profit
8,494
540
540
540
420
300
180
300
8,400
3,240
270
270
270
270
270
270
270
270
270
270
270
270
3,240
5,254
270
510
750 1,230
990
750
270
270
150
30
(90)
30
5,160
Taxes
1,891
97
184
270
443
356
270
97
97
54
11
(32)
11
1,858
3,363
173
326
480
787
634
480
173
173
96
19
(58)
19
3,302
Dividends
1,495
300
300
300
600
1,500
Retained earnings
1,868
173
326
180
787
634
180
173
173
(204)
19
(58)
(581)
1,802
173
499
Page 3
Exhibit 2
Cash
Accounts receivablea
Inventories
2,121
2,084
8,106
July
736
2,850
8,368
Aug.
736
3,750
8,303
1995
Sept.
736
4,650
7,878
Exhibit 2
Oct.
Nov.
Dec.
Jan.
Feb.
736
6,150
6,733
736
6,150
5,948
1,139
5,250
5,523
2,609
3,750
5,818
3,179
3,150
6,113
1996
Mar.
2,413
2,850
6,588
Apr.
May
June
2,235
2,400
7,243
1,759
1,950
8,078
727
2,100
8,733
Current assets
12,311
Net plant
24,564
Total assets
36,875
0
861
0
270
985
744
97
270
2,772
777
281
270
3,270
777
78
270
2,395
777
521
270
620
777
877
270
0
777
674
270
0
777
771
270
0
777
868
270
0
777
449
270
0
777
460
270
0
777
428
270
1,162
777
(34)
270
1,131
2,096
4,100
4,395
3,963
2,544
1,721
1,818
1,915
1,496
1,507
1,475
2,175
Mortgage 8%
Common stock
Earned surplus
11,960
11,500
12,284
36,875
b
c
Estimated taxes are paid in four equal installments of $380,000 each in September, December, March, and June based on pro forma earnings calculated the previous June.
Page 4
Exhibit 2 (continued)
Exhibit 2 (continued)
July
Aug.
1995
Sept.
Oct.
Nov.
Dec.
Jan.
Feb.
1996
Mar.
Apr.
May
June
Raw Materials
Opening balances
Plus: Purchases
Less: Trans. to work in progress
810
744
777
777
777
777
777
777
777
777
777
777
777
777
777
777
777
777
777
777
777
777
777
777
777
777
777
777
777
777
777
777
777
777
777
777
Closing balance
777
777
777
777
777
777
777
777
777
777
777
777
Opening balance
Plus: Raw materials additions
Plus: Labor additions
Less: Trans. to finished goods
3,110
777
778
1,555
3,110
777
778
1,555
3,110
777
778
1,555
3,110
777
778
1,555
3,110
777
778
1,555
3,110
777
778
1,555
3,110
777
778
1,555
3,110
777
778
1,555
3,110
777
778
1,555
3,110
777
778
1,555
3,110
777
778
1,555
3,110
777
778
1,555
Closing balance
3,110
3,110
3,110
3,110
3,110
3,110
3,110
3,110
3,110
3,110
3,110
3,110
Opening balance
Plus: Work in process additions
Less: Cost of goods sold
4,186
1,555
1,260
4,481
1,555
1,620
4,416
1,555
1,980
3,991
1,555
2,700
2,846
1,555
2,340
2,061
1,555
1,980
1,636
1,555
1,260
1,931
1,555
1,260
2,226
1,555
1,080
2,701
1,555
900
3,356
1,555
720
4,191
1,555
900
Closing balance
4,481
4,416
3,991
2,846
2,061
1,636
1,931
2,226
2,701
3,356
4,191
4,846
8,368
8,303
7,878
6,733
5,948
5,523
5,818
6,113
6,588
7,243
8,078
8,733
Work in Process
Finished Goods
Page 5
Exhibit 3
Exhibit 3
July
Sales ($)
Aug.
Sept.
1995
Oct.
Nov.
Dec.
1996
Feb.
Jan.
Mar.
2,070
2,605
3,080
4,066
3,373
2,799
1,758
1,738
1,498
1,304
1,641
1,949
2,440
2,024
1,680
1,056
1,095
960
374
323a
Cost of goods
Materials and labor
Overhead (incl. depreciation $130)
296
290
340
310
303
288
293
1,600
1,931
2,289
2,750
2,327
1,968
1,349
1,469
1,283
Gross profit
470
674
791
1,316
1,046
831
409
269
215
273
273
293
275
275
269
260
258
258
197
401
498
1,041
771
562
149
11
(43)
Taxes
71
144
179
375
278
202
54
(15)
126
257
319
666
493
360
95
(28)
300
300
(300)
Retained earnings
126
257
19
666
493
60
95
(328)
126
383
402
1,068
1,561
1,621
1,716
1,723
1,395
Page 6
Exhibit 4
Exhibit 4
June
Cash
Accounts receivable
Inventories
July
Aug.
1995
Sept.
Oct.
Nov.
Dec.
Jan.
1996
Feb.
Mar.
2,121
2,084
8,106
957
2,837
8,378
573
3,644
8,303
702
4,395
7,963
696
5,651
7,179
830
5,526
6,705
641
5,573
6,502
1,133
3,958
6,925
1,076
3,169
7,170
688
2,867
7,374
12,311
12,172
12,520
13,060
13,526
13,061
12,716
12,016
11,415
10,929
24,564
26,103
27,672
27,848
27,858
27,843
27,885
27,843
27,810
27,812
36,874
38,275
40,192
40,908
41,384
40,904
40,601
39,859
39,225
38,741
0
861
0
270
1,270
789
71
275
2,759
774
215
317
3,714
843
(79)
284
3,110
876
296
290
1,916
834
574
275
2,279
684
303
269
1,376
699
357
266
778
658
361
260
1,256
514
(127)
258
Current liabilities
1,131
2,405
4,065
4,762
4,572
3,599
3,535
2,698
2,057
1,901
11,960
11,500
12,284
11,960
11,500
12,410
11,960
11,500
12,667
11,960
11,500
12,686
11,960
11,500
13,352
11,960
11,500
13,845
11,661
11,500
13,905
11,661
11,500
14,000
11,661
11,500
14,007
11,661
11,500
13,679
36,875
38,275
40,192
40,908
41,384
40,904
40,601
39,859
39,225
38,741
Current assets
Net plant
Total assets
Mortgage 8%
Common stock
Earned surplus
Total liabilities, net worth
Page 7
Exhibit 4 (continued)
Exhibit 4 (continued)
June
July
Aug.
1995
Sept.
Oct.
Nov.
Dec.
Jan.
1996
Feb.
Mar.
Raw Materials
Opening balances
Plus: Purchases
Less: Trans. to work in process
810
787
783
814
777
834
757
837
834
760
867
834
793
802
772
823
688
733
778
690
706
762
652
661
753
518
601
Closing balance
814
757
760
793
823
778
762
753
670
Opening balance
Plus: Raw materials additions
Plus: Labor additions
Less: Trans. to finished goods
3,110
783
789
1,551
3,131
834
789
1,558
3,196
834
772
1,581
3,221
834
789
1,620
3,224
772
748
1,605
3,139
733
789
1,624
3,037
706
789
1,579
2,953
661
688
1,521
2,781
601
646
1,495
Closing balance
3,131
3,196
3,221
3,224
3,139
3,037
2,953
2,781
2,533
Finished Goods
Opening balance
Plus: Work in process additions
Less: Cost of goods sold
4,186
1,551
1,304
4,433
1,558
1,641
4,350
1,581
1,949
3,982
1,620
2,440
3,162
1,605
2,024
2,743
1,624
1,680
2,687
1,579
1,056
3,210
1,521
1,095
3,636
1,495
960
Closing balance
4,433
4,350
3,982
3,162
2,743
2,687
3,210
3,636
4,171
8,378
8,303
7,963
7,179
6,705
6,502
6,925
7,170
7,374
Work in Process
Page 8
Exhibit S-1
Exhibit S-1 Variations of actual Data from Forecasted Data (thousand of dollars)
July
August
Income Statement
Net sales
Profits after taxes
Dividends
Retained earnings
Balance sheets
Cash
Account receivable
Inventory
Current assets
Net plant
Total assets
Bank loans
Accounts payable
Taxes payable
Miscellaneous other
Current liabilities
Mortage
Common stock
Earned surplus
Total liabilities
and capital
Page 9
September
October
Exhibit S-1
d of dollars)
November
December
Jannuary
February
Page 10
March
June
July
Aug.
Raw Materials
Opening balances
Plus: Purchases
Less: Trans. to work in process
Closing balance
Work in Process
Opening balance
Plus: Raw materials additions
Plus: Labor additions
Less: Trans. to finished goods
Closing balance
Finished Goods
Opening balance
Plus: Work in process additions
Less: Cost of goods sold
Closing balance
Total closing inventory
Page 11
1995
Sept.
Oct.
Nov.
Dec.
Jan.
1996
Feb.
Mar.
Page 12
Exhibit S-2
Exhibit S-2 Sample Pro Forma and Actual Ratios and Other Financial Data
June30, 1995
Current ratio
Acid-test ratio
Collection period (days)
(based on average daily
sales in the most recent
60 days)
Average Inventory
turnover for quarter
(annualized)
Net income/average
net worth for quarter
Net worth/total assets
Page 13
Exhibit S-2
Page 14
Exhibit S-3
Exhibit S-3 Pro Forma Balance Sheets, December 31, 1996 and February 28, 1997 (rough estimates)
Actual
March 31,1996
Pro forma
December 31, 1996
Cash
Accounts receivable
Inventories
Current assets
Net plant
Total assets
Bank loans payable
Accounts payable
Taxes payable
Miscellaneous other
Current liabilities
Mortgage 8%
Common stock
Earned surplus
Total liabilities, net worth
Page 15
Exhibit S-3
Page 16