7. If you were the commercial loan officer and were approached by Andre for a short term loan of $25,000, what would your decision be?
Given the firm’s poor profitability and cash flow situation, I would not grant the loan. However, I would tell him that if he can demonstrate improvement in inventory management and better profitability over the next 2 quarters, we would reconsider.
8. What recommendations should Juan make for improvement, if any?
The firm needs to improve its inventory management, and credit collection policies. Further, the cost of sales and miscellaneous costs should be looked into and brought down more in line with its level in 2000. This will improve the liquidity and profitability of the company.
9. What kinds of problems do you think Juan would have to cope with when doing a comprehensive financial statement analysis of Quickfix Parts? What are the limitations of financial statement analysis in general?
General Problems
Selection of comparison benchmark
Accounting procedures differ.
Different fiscal year end
Seasonal businesses
Extraordinary gains/losses
Specific Problems
Selection of appropriate benchmark/ industry averages