Analyze the case of finance.
Case: Chilliwacky Corporation
Chilliwacky Corporation is a cog maker in Western British Columbia established in 1982. It has grown over time by making high quality cogs and providing excellent customer service. The production plant is located in Kamloops and is operating at 90% capacity. Sales are concentrated with 1 large customer, Victoria Limited, under accounts receivable terms of net 60. Raw materials are purchased from a Salmon Arm distributor under terms of net 30 with overdue accounts paying 12% per annum. Financing is from various sources one of which is Toronto-Dominion Bank under a 2 year term revolving line of credit of $6 million. Security for this financing is pledging inventory and accounts receivable as well as a $3 million personal guarantee by the owner-CEO Susan Surrey. Toronto-Dominion Bank will lend up to 80% of accounts receivable, 40% of raw materials, 30% of work-in-process and 60% of finished goods inventory. The revolving line of credit must have a zero balance for at least 1 month of the year.
Covenants with the loan include maintaining a current ratio of 1.7, cash flow coverage of 1.6 and a long-term debt to total capitalization ratio no more than 55%. No dividends are paid and all profits are reinvested in the company for growth. Toronto-Dominion Bank is concerned that Chilliwacky Corp. is floundering financially speaking and is reviewing its performance over the last 4 years. Conduct a thorough financial analysis based on the 5 years of income statements and balance sheets provided as well as industry average benchmarks. Include in your report ratio analysis, common size analysis and index series analysis for 2011-2015 as well as cash flow statements for 2012-2015 plus an annual DuPont Identity ROE analysis. Your report should include a 2 page summary of your analysis.
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Chilliwacky
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Corporation
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Income
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Statement
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$
|
|
Account
|
2011
|
2012
|
2013
|
2014
|
2015
|
|
Sales
|
15015500
|
26130560
|
39403320
|
58532340
|
71511720
|
|
COGS
|
10434500
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18595530
|
28323060
|
42565660
|
53000150
|
|
GP
|
4581000
|
7535030
|
11080260
|
15966680
|
18511570
|
|
S & D
|
1650340
|
2450630
|
3763400
|
5400350
|
6001230
|
|
R&D
|
145340
|
453640
|
765340
|
1580340
|
1900450
|
|
Admin
|
550340
|
1050750
|
1950600
|
3400000
|
4080520
|
|
Amort
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579944
|
908884
|
1880284
|
2999199
|
3838790
|
|
Operating Profit
|
1660036
|
2671126
|
2720636
|
2586791
|
2690580
|
|
Interest
|
224139
|
392759
|
952308
|
1653235
|
2301176
|
|
EBT
|
1435897
|
2278367
|
1768328
|
933556
|
389404
|
|
Taxes
|
502564
|
797429
|
618915
|
326744
|
136291
|
|
Net Income
|
933333
|
1480939
|
1149413
|
608811
|
253112
|
|
Chilliwacky
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Corporation
|
Balance
|
Sheet
|
|
$
|
|
Account
|
2011
|
2012
|
2013
|
2014
|
2015
|
|
Cash
|
400840
|
790670
|
1034690
|
823580
|
765340
|
|
A/R
|
2459600
|
4340540
|
6450340
|
9950340
|
11550420
|
|
RM Inv
|
675340
|
1103400
|
1789340
|
2450340
|
3240340
|
|
WIP Inv
|
874320
|
1440530
|
1950340
|
2340680
|
2489390
|
|
F/G Inv
|
802160
|
1674293
|
2614583
|
4413753
|
6751713
|
|
CA
|
5212170
|
9349433
|
13839293
|
19978693
|
24797203
|
|
L,P,E net
|
5504440
|
8756340
|
18345340
|
29453350
|
37689560
|
|
Intang
|
245000
|
332500
|
457500
|
538640
|
698340
|
|
T Assets
|
10961610
|
18438273
|
32642133
|
49970683
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63185103
|
|
|
|
|
|
|
|
A/P
|
1760340
|
4009870
|
6498227
|
9922996
|
12885442
|
|
CPLTD
|
399534
|
649188
|
1518833
|
2636739
|
3545726
|
|
CL
|
2159874
|
4659058
|
8017060
|
12559735
|
16431168
|
|
LTD
|
3995340
|
6491880
|
15188326
|
26367389
|
35457263
|
|
Equity
|
4806396
|
7287335
|
9436748
|
11043559
|
11296671
|
|
TL & E
|
10961610
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18438273
|
32642133
|
49970683
|
63185103
|
Benchmarks for Financial Ratios (assume the same for all years)
Current 2.4
Cash 0.20
RM turnover (days) 35
WP turnover (days) 15
FG turnover (days) 70
A/R turnover (days) 33
A/P turnover (days) 55
Cash conversion cycle (days) 98
Fixed Assets turnover 2.1X
Total Asset turnover 1.2X
Long-term debt to total capitalization 32%
Cash flow coverage 2X
Gross profit margin 42%
Operating profit margin 15%
Net profit margin 9%
ROA 10.8%
ROE 17.6%
Benchmark Common Size % Balance Sheet (assume the same for all years)
|
Cash 16.45
|
|
A/R8.34
|
|
RM Inv5.38
|
|
WIP Inv1.54
|
|
F/G Inv15.34
|
|
CA47.05
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|
L,P,E net45.65
|
|
Intang7.3
|
|
T Assets100
|
|
|
A/P9.45
|
|
CPLTD5.39
|
|
CL14.84
|
|
LTD23.45
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|
Equity61.71
|
|
TL & E100
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Benchmark Common Size Income Statement % (assume the same for all years)
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Sales100
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COGS58
|
|
GP42
|
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S & D14.45
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R&D1.56
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|
Admin5.67
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Amort4.77
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Operating Profit15.55
|
|
Interest1.59
|
|
EBT13.97
|
|
Taxes4.89
|
|
Net Income9.08
Note: Due to rounding as well as collection of industry data from different sources some common size and ratio data may not match. Therefore, take the above data and use it specifically in your analysis.
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