bigger is not always better
Financial Management
Case study-1
Bigger Isn’t Always Better!
Overview
Andre Pires, with over 15 years experience in the automobile industry opened a automobile parts store, in mid-western region of United States. Business had picked up significantly well over the years and Andre had more than doubled the store size by the third year of operations. Andre’s knowledge of finance and accounting was limited and he decided to recruit Juan Plexo, a second semester MBA student ,who had an undergraduate degree in Accountancy and was interested in concentrating in finance.
Facts
Andre had learned the nuances of the fiercely competitive auto mobile servicing business.
Andre had more than doubled the store size by the third year of operations.
Most of his available funds were used up in expanding the business.
For the past two years, the store’s net income figures had been negative and his cash flow situation had gotten pretty weak. Issues
The net income figures for the past two years was negative.
Andre needed to raise funds for future growth and was in need of a loan.
The return on assets and return on equity had become negative in the last two years.
The Earnings per share(EPS) also is negative in the last two years.
Q1. How does Quick fix’s average compound growth rate in sales compare with its earnings growth rate over the past five years?
Ans. CAGR in sales= (Ending value/Beginning value) ^ (1/#of years)-1 = (1,013,376/600,000^1/5)-1 =.1105
Average compound growth rate in sale=CAGR/No of years=.1105/5=2.21%
Average earnings growth rate=Net income/Sales
Particulars 2000 2001 2002 2003 2004
Net income 16634 22859 2126 -16435 -102
Net sales 600,000 655,000
Case study-1
Bigger Isn’t Always Better!
Overview
Andre Pires, with over 15 years experience in the automobile industry opened a automobile parts store, in mid-western region of United States. Business had picked up significantly well over the years and Andre had more than doubled the store size by the third year of operations. Andre’s knowledge of finance and accounting was limited and he decided to recruit Juan Plexo, a second semester MBA student ,who had an undergraduate degree in Accountancy and was interested in concentrating in finance.
Facts
Andre had learned the nuances of the fiercely competitive auto mobile servicing business.
Andre had more than doubled the store size by the third year of operations.
Most of his available funds were used up in expanding the business.
For the past two years, the store’s net income figures had been negative and his cash flow situation had gotten pretty weak. Issues
The net income figures for the past two years was negative.
Andre needed to raise funds for future growth and was in need of a loan.
The return on assets and return on equity had become negative in the last two years.
The Earnings per share(EPS) also is negative in the last two years.
Q1. How does Quick fix’s average compound growth rate in sales compare with its earnings growth rate over the past five years?
Ans. CAGR in sales= (Ending value/Beginning value) ^ (1/#of years)-1 = (1,013,376/600,000^1/5)-1 =.1105
Average compound growth rate in sale=CAGR/No of years=.1105/5=2.21%
Average earnings growth rate=Net income/Sales
Particulars 2000 2001 2002 2003 2004
Net income 16634 22859 2126 -16435 -102
Net sales 600,000 655,000