Assignment 2: Turnaround Strategies
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 Submit your report to the W5: Assignment 2 Dropbox by October 12, 2013.
| Grading Criteria |
Maximum Points
|
| Accurately calculated the firm’s total operating cycle for two years. |
10
|
| Recommended working capital and asset restructuring. |
10
|
| Recommended operations restructuring. |
10
|
| Recommended financial restructuring. |
10
|
| Presented a structured document free of spelling and grammatical errors. |
5
|
| Properly cited sources using APA format. |
5
|
| Total: |
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