Case 36 Questions

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Case 36 Questions

1. Complete the 1992 columns of Tables 3 through 6, disregarding for now the projected data in the 1993 and 1994 columns. If you are using the Lotus model, use it to complete the tables. Be sure you understand all the numbers, as it would be most embarrassing (and harmful to your career) if you were asked how you got a particular number, and you could not give a meaningful response.

Tables

2. Based on the information in the case and on the results of your calculations in Question1, prepare a list of Garden State’s strengths and weaknesses. In essence, you should look at the common-size income statements and each group of keys ratios (for example, the liquidity ratios) and see what those ratios indicate and the company’s operations and financial condition. As a part of your answer, use the extended Du Pont equation to highlight the key relationships.

Weaknesses: Quick ratio, as well as the Current ratio, is below average, and has been steadily decreasing since 1990. Debt ratio is steadily increasing, while the ability to service the outstanding debt, measured by the interest coverage ratio, is decreasing. Meaning that they have less ability to service their debt with earnings. Profitability margins are decreasing along with turnover on assets.

Strengths: They have a new plan.

3. Recognizing that you might want to revise your opinion later, does it appear, based on your analysis to this point, that the bank should lend the requested money to Garden State? Explain.

They should not lend the requested money based on the aforementioned numbers. They are incurring more debt with less profitability and no way to service it.

4. Now complete the tables to develop pro forma financial statements for 1993 and 1994. For these calculations, assume that the bank is willing to maintain the present credit lines and to grant an additional $12,750,000 of short-term credit on January 1,...