Below are the balance sheet and income statement for 2005 and 2006 of a company that is in financial distress.
Balance Sheet for 2005 and 2006
|
2005 ($) |
2006 ($) |
| Cash |
20,000 |
5,000 |
| Accounts receivables |
150,000 |
395,000 |
| Inventories |
300,000 |
200,000 |
| Total current assets |
470,000 |
600,000 |
| Fixed assets, net |
350,000 |
350,000 |
| Total assets |
820,000 |
950,000 |
| Accounts payable |
85,000 |
170,000 |
| Accruals |
40,000 |
50,000 |
| Bank loan |
150,000 |
150,000 |
| Total current liabilities |
275,000 |
270,000 |
| Long-term debt |
325,000 |
500,000 |
| Common stock ($5 par) |
100,000 |
100,000 |
| Capital Surplus |
70,000 |
70,000 |
| Retained Earnings |
50,000 |
10,000 |
| Total liabilities and equity |
820,000 |
950,000 |
Income Statement for 2005 and 2006
|
2005 ($) |
2006 ($) |
| Net sales |
800,000 |
600,000 |
| Cost of goods sold |
500,000 |
400,000 |
| Gross profit |
300,000 |
200,000 |
| Marketing |
50,000 |
70,000 |
| General and administrative |
60,000 |
80,000 |
| Depreciation |
20,000 |
30,000 |
| EBIT |
170,000 |
20,000 |
| Interest |
50,000 |
60,000 |
| Earnings before taxes |
120,000 |
-40,000 |
| Income taxes (35%) |
42,000 |
0 |
| Net income |
78,000 |
-40,000 |
Your tasks:
- Calculate the firm's total operating cycle for 2005 and 2006.
- What type of working capital restructuring can the firm do to turn around its performance? What other types of asset restructuring might the firm consider?
- What type of operations restructuring should the firm consider?
- What type of financial restructuring should the firm consider?
Present the information and your analysis as a four-page report. Include your Excel worksheets