254639970 Pacific Grove Spice Company
Based on Pacific Grove Spice Company’s forecasted financial statements, are its profitable operations sufficient to quickly bring it into compliance with the bank’s requirements?
By looking at Pacific Grove Spice Company’s forecasted financial statements, we can conclude that its profitable operations are not sufficient enough for it to be able to comply with the bank’s requirements by 30th June 2012. By the end of June-2012 Pacific Grover would only be able to lower its Equity Multiplier to 3.3 and its total debt would still be around 61% of its total assets. However, up on further analysis, we can conclude that Pacific Grove Spice would be able to comply with the bank’s requirements by 30th June 2015. As by then it would be able to reduce its equity multiplier to 2.7 and its total debt would be around 55% of its total assets. The table below gives a breakdown of its equity multiplier and its total debt with respect to total assets and owners equity. 6/30/2011
6/30/2012
6/30/2013
6/30/2014
6/30/2015
Equity Multiplier
3.47
3.30
3.15
2.97
2.77
Total Debt (Millions)
37.17
41.31
45.52
48.89
51.08
Debt as % of Total Assets
62%
61%
59%
57%
55%
Debt as % of Owners Equity
216%
201%
187%
170%
153%
Should Pacific issue new common stock to the external investment group?
A Investment group is willing to purchase 400,00 shares at $27.5 per share if Pacific Grove Spice’s management decides to go ahead with this option they will end up raising $11 million in new capital and If the management uses the entire $11 million to pay of the debt then it’s Equity Multiplier would go down to 2.13 and the total debt to around 44% of its total assets by June-2012. The table below gives a breakdown of its equity multiplier and its total debt with respect to total assets and owner’s equity if the firm decides to use the entire $11 million to replay the banks loan. 6/30/2011
6/30/2012
6/30/2013
6/30/2014
6/30/2015
Equity Multiplier
3.47
2.13
2.11
2.08
2.01
Total Debt (Millions)
37.17
By looking at Pacific Grove Spice Company’s forecasted financial statements, we can conclude that its profitable operations are not sufficient enough for it to be able to comply with the bank’s requirements by 30th June 2012. By the end of June-2012 Pacific Grover would only be able to lower its Equity Multiplier to 3.3 and its total debt would still be around 61% of its total assets. However, up on further analysis, we can conclude that Pacific Grove Spice would be able to comply with the bank’s requirements by 30th June 2015. As by then it would be able to reduce its equity multiplier to 2.7 and its total debt would be around 55% of its total assets. The table below gives a breakdown of its equity multiplier and its total debt with respect to total assets and owners equity. 6/30/2011
6/30/2012
6/30/2013
6/30/2014
6/30/2015
Equity Multiplier
3.47
3.30
3.15
2.97
2.77
Total Debt (Millions)
37.17
41.31
45.52
48.89
51.08
Debt as % of Total Assets
62%
61%
59%
57%
55%
Debt as % of Owners Equity
216%
201%
187%
170%
153%
Should Pacific issue new common stock to the external investment group?
A Investment group is willing to purchase 400,00 shares at $27.5 per share if Pacific Grove Spice’s management decides to go ahead with this option they will end up raising $11 million in new capital and If the management uses the entire $11 million to pay of the debt then it’s Equity Multiplier would go down to 2.13 and the total debt to around 44% of its total assets by June-2012. The table below gives a breakdown of its equity multiplier and its total debt with respect to total assets and owner’s equity if the firm decides to use the entire $11 million to replay the banks loan. 6/30/2011
6/30/2012
6/30/2013
6/30/2014
6/30/2015
Equity Multiplier
3.47
2.13
2.11
2.08
2.01
Total Debt (Millions)
37.17