Who can figure bankers?” Pehr Weisengraf mumbled as he returned to the office of his small candy manufacturing business, Professional Confectioners. “They’re willing to lend money only to those business owners who don’t really need it. If you can prove you don’t need it, they’ll throw it at your feet. Unfortunately, we need it, and we need it fast.”
Pehr called Robert Peltzman, the company’s part-time bookkeeper, to see if he could explain what the banker had been talking about when he rejected Pehr’s request for $80,000 to purchase new candy-making equipment and to boost the company’s working capital base. “They turned down my loan request,” Pehr explained to Robert. “The banker had those copies of our financial statements that you’ve been sending her. She said that many of our financial ratios were way off what they should be. I’ve never even taken a business course much less an accounting course. I have no idea what she was talking about, but she did give me this,” Pehr said, thrusting a piece of paper at Robert. “I don’t know. I don’t understand any of it.”
Robert looked at the page and saw that the banker had calculated several financial ratios based on Professional Confectioner’s most recent financial statements and had compared them to the industry average. Here’s what he saw:
|Ratio||Last Year||This Year||Industry Average|
|Debt to Net Worth Ratio||2.6:1||2.9:1||1.9:1|
|Inventory Turnover Ratio||4.9 times/year||4.3 times/year||7.1 times/year|
|Average Collection Period||36 days||43 days||34 days|
|Net Sales to Working Capital Ratio||10.4:1||9.7:1||12.6:1|
|Net Profit on Sales Ratio||4.1%||3.8%||9.4%|
|Net Profit to Equity Ratio||17.6%||18.3%||13.4%|
- Answer Pehr’s question to Robert, “Can you tell me what this means, and more importantly, what we can do to improve our ratios so we can qualify for a loan?”
- Now, choose a company from the Fortune 100, and review its annual report financials. Company annual reports are often found on the “Investor” or “Investor Relations” section of a company’s Web site. Additional information and ratios for a company can be found using the Hoover’s Pro resource in the Find Web Resources section of the Library. Identify four ratios you consider important to that business and then write a narrative on why they are important.
Your report must include a reference list. All research should be cited in the body of the paper. Your report should contain a short introduction and conclusion in addition to the body of the paper. Please note that if you have a source in your reference section, you need to cite it in the body of the paper per APA guidelines and vice-versa.
Deliverable length: 4-6 paragraphs for original posting, 2-3 paragraphs for at least two in-depth replied postings
Objective: The objective of the assignment will involve following the course outcomes and grading criteria with their respective percentages for the grading rubric:
- Explore start-ups, expansions, relocations, and franchising. (50%)
- The remaining 50% of the grading will be based on your in-depth interactions with at least two of your colleagues.
For more information on APA, please visit the APA Lab.