Balance Sheet 2003 2011 2012 2013

Cash 34000 51000 23800 17000

Accounts Receivable 136000 204000 231200 323000

Inventory 170000 255000 425000 688500

Total Current Assets 340000 510000 680000 1028500

Land and Building 51000 40800 108800 102000

Machinery 68000 125800 98600 85000

Other Fixed Assets 40800 23800 6800 5100

Total Fixed Assets 159800 190400 214200 192100

Total Assets 499800 700400 894200 1220600

Notes Payable, bank --- --- 85000 238000

Accounts and Notes Payable 74800 81600 129200 255000

Accruals 34000 40800 47600 64600

Total Current Liabilities 108800 122400 261800 557600

Mortgage - Long-term liab. 51000 37400 34000 30600

Total Liabilities 159800 159800 295800 588200

Common Stock 306000 306000 306000 306000

Retained Earnings 34000 234600 292400 326400

Total S.Equity 340000 540600 598400 632400

Total Liabilities & Equity 499800 700400 894200 1220600

Income Statement 2011 2012 2013

Net Sales 2210000 2295000 2380000

Cost of Goods Sold 1768000 1836000 1904000

Gross Operating Profit 442000 459000 476000

General, Administrative, Selling 170000 187000 204000

Depreciation 68000 85000 102000

Miscellaneous 34000 71400 102000

EBT 170000 115600 68000

Taxes (50%) 85000 57800 34000

Net Income $85,000 $57,800 $34,000

Industry

Quick Ratio 1

Current Ratio 2.7

Inventory Turnover - times 7

Inventory Period - days 52.1

Average Collection Period - days 32

Fixed Asset Turnover - times 13

Total Asset Turnover - times 2.6

Return on Total Assets 9.0%

Return on Equity 18.0%

Debt (Total) Ratio 50.0%

Profit Margin on Sales 3.5%

Internal growth rate

Sustainable growth rate

1) Calculate the key financial ratios for Seal-best, Inc., and plot trends in the firm's ratios against the industry averages.

2) What strengths and weaknesses are revealed by the ratio analysis?

3) What amount of internally-generated funds would be available for the retirement of the loan? If the bank were to grant the additional credit and extend the increased loan from a due date of February 1, 2014 to June 30, 2014, would the company be able to retire the loan on June 30? (Hint: To answer this question, consider profits and depreciation as well as the amount of inventories and receivables that would be carried if Seal-best's inventory turnover and average collection period (Days Sales Outstanding) were at industry average levels, that is, generating funds by reducing inventories and receivables to industry averages.)

4) In 2013, Seal-best's return on equity was 5.38 percent, versus 18 percent for the industry. Use the duPont equation to pinpoint the factors causing Seal-best to fall so far below the industry average.

5) On the basis of your financial analysis, do you believe that the bank should grant the additional loan and extend the entire line of credit to June 30, 2014?

6) If the credit extension is not made, what alternatives are open to Seal-best?

7) Under what circumstances is the validity of comparative ratio analysis questionable?