Fsa Case Discussion Questions
Financial Statement Analysis
Case Discussion Questions
CASE: The Case of the Unidentified Industries - 2006
The questions are in the case. However, the following information might be helpful.
1. For purposes of this case the loans of the commercial bank are classified as accounts receivable and the deposits as accounts payable.
2. Unlike most business done on a credit basis where $1 of revenue creates a $1 accounts receivable, in advertising $1 of revenue creates $1/15% = $6.67 of accounts receivable. Note that the advertising agency reports as revenue commission equal to 15% of media purchases. While commissions on media purchases account for less than 50% of the firm’s revenues, this produces a dramatic distortion in the reported collection period for the advertising agency.
3. Firms that transact with customers in cash on a face-to-face basis will have a zero day accounts receivable collection period since an account receivable will never be created. Firms which transact with customers on a credit card basis (with the card issued by an unrelated entity) will usually receive payment from the card issuing bank within a week to ten days of the change date, not when the customer pays the credit card bill. Business to consumer transactions on open account in the US usually have credit terms of 30 days or longer.
Financial Statement Analysis
Case Discussion Questions
CASE: Tire City, Inc. (TCI)
1. Evaluate Tire City’s financial health. How well is the company performing?
2. Based on Mr. Martin’s prediction for 1996 sales of $28,206,000, and for 1997 sales of $33,847,000 and relying on the other assumptions provided in the case, prepare complete pro forma forecasts of TCI’s 1996 and 1997 income statements and year-end balance sheets. As a preliminary assumption, assume any new financing required will be in the form of bank debt. Assume all debt (existing and any new debt) bears interest at the same rate of 10%.
3. Using your set of
Case Discussion Questions
CASE: The Case of the Unidentified Industries - 2006
The questions are in the case. However, the following information might be helpful.
1. For purposes of this case the loans of the commercial bank are classified as accounts receivable and the deposits as accounts payable.
2. Unlike most business done on a credit basis where $1 of revenue creates a $1 accounts receivable, in advertising $1 of revenue creates $1/15% = $6.67 of accounts receivable. Note that the advertising agency reports as revenue commission equal to 15% of media purchases. While commissions on media purchases account for less than 50% of the firm’s revenues, this produces a dramatic distortion in the reported collection period for the advertising agency.
3. Firms that transact with customers in cash on a face-to-face basis will have a zero day accounts receivable collection period since an account receivable will never be created. Firms which transact with customers on a credit card basis (with the card issued by an unrelated entity) will usually receive payment from the card issuing bank within a week to ten days of the change date, not when the customer pays the credit card bill. Business to consumer transactions on open account in the US usually have credit terms of 30 days or longer.
Financial Statement Analysis
Case Discussion Questions
CASE: Tire City, Inc. (TCI)
1. Evaluate Tire City’s financial health. How well is the company performing?
2. Based on Mr. Martin’s prediction for 1996 sales of $28,206,000, and for 1997 sales of $33,847,000 and relying on the other assumptions provided in the case, prepare complete pro forma forecasts of TCI’s 1996 and 1997 income statements and year-end balance sheets. As a preliminary assumption, assume any new financing required will be in the form of bank debt. Assume all debt (existing and any new debt) bears interest at the same rate of 10%.
3. Using your set of