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Case Study
Case Study
CASE STUDY
Ian Manufacturing Company was organized five years ago and manufactures toys. Its most
recent three years’ balance sheets and income statements are reproduced below:
Additional Information:
1. All sales are on account.
2. Long-term liabilities are owed to the company’s bank.
3. Terms of sale are net 30 days.
Required:
a. Compute the following measures for both Years 4 and 5:
(1) Working capital.
(2) Current ratio.
(3) Acid-test ratio.
(4) Accounts receivable turnover.
(5) Collection period of receivables.
(6) Inventory turnover.
(7) Days to sell inventory.
(8) Debt-to-equity ratio.
(9) Times interest earned
b. Using Year 3 as the base year, compute an index-number trend series for:
(1) Sales.
(2) Cost of goods sold.
(3) Gross profit.
(4) Marketing and administrative costs.
(5) Net income.
c. Based on your analysis in (a) and (b), prepare a one-page report yielding a recommendation on
whether to grant a loan to Ian Manufacturing. Support your recommendation with relevant analysis