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1.How does Quickfix’s average compound growth rate in sales compare with itsearnings growth rate over the past five years? Quickfix’s sales have increased by an average compound rate of 14% per year over the period, 1997-2001. In comparison, its net income has declined from over $16,600 millionto a loss of $102 in 2001. 2.Which statements should Juan refer to and which one’s should he construct so as todevelop a fair assessment of the firm’s financial condition? Explain why? Juan should refer to the income statement and the balance sheet over the past 3-5 year  period. In addition, he should prepare a cash flow statement, common size incomestatement and common size balance sheet. The accounting statements provide the rawdata from which the other statements can be prepared. The cash flow statement helpsdetermine where the cash came from and where it was spent during a year. The commonsize statements provide useful information regarding the relative trends of the variousassets, liabilities, revenue sources, and expense items. They also help the analyst makemeaningful comparisons between firms of varying sizes. 3.What calculations should Juan do in order to get a good grasp of what is going onwith Quickfix’s performance? Juan should calculate the various liquidity, leverage, profitability, activity, and coverageratios for at least a three-year period. In addition, a Du Pont analysis of the return onequity will help determine what has affected the profitability of the company.

4.Juan knows that he should compare Quickfix’s condition with an appropriatebenchmark. How should he go about obtaining the necessary comparison data? Based on Quickfix’s industry classification code, Juan should collect industry averages of the key financial ratios. Some useful sources for industry ratios include: Value Line,Moody’s, Standard & Poor, And Dun & Bradstreet. In addition to the industry average,the industry leader’s (within the size category) ratios could also be collected from theInternet (e.g. Marketguide.com) and used for comparison.  

5.Besides comparison with the benchmark what other types of analyses could Juanperform to comprehensively analyze the firm’s condition? Perform the suggestedanalyses and comment on your findings. Besides comparison with the benchmark, Juan could perform common size analyses of the financial statements and a DuPont analysis of the return on assets and the return onequity.

Quickfix Autoparts
Common Size Income Statement 
1997 1997% 1998 1998% 1999 1999% 2000 2000% 2001
 Net sales $600,000 100.0% $655,000 100.0% $780,000 100.0% $873,600 100.0% $1,013,376 Cost of goods sold 480,000 80.0% 537,100 82.0% 655,200 84.0% 742,560 85.0% 861,370 Gross profit $120,000 20.0% $117,900 18.0% $124,800 16.0% $131,040 15.0% $152,006 Admin and selling exp $30,000 5.0% $15,345 2.3% $16,881 2.2% $43,680 5.0% $40,535 Depreciation 25,000 4.2% 25,000 3.8% 50,000 6.4% 50,000 5.7% 50,000 Miscellaneous expenses 2,027 0.3% 3,557 0.5% 5,725 0.7% 17,472 2.0% 15,201 Total operating exp $57,027 9.5% $43,902 6.7% $72,606 9.3% $111,152 12.7% $105,736 EBIT $62,973 10.5% $73,998 11.3% $52,194 6.7% $19,888 2.3% $46,271 Interest on ST loans $15,000 2.5% $15,950 2.4% $14,000 1.8% $13,320 1.5% $13,320 Interest on LT loans 8,000 1.3% 7,840 1.2% 15,680 2.0% 15,200 1.7% 14,640 Interest on mortgage 12,250 2.0% 12,110 1.8% 18,970 2.4% 18,760 2.1% 18,480 Total interest $35,250 5.9% $35,900 5.5% $48,650 6.2% $47,280 5.4% $46,440Before-tax earnings $27,723 4.6% $38,098 5.8% $3,544 0.5%($27,392)-3.1%($169) Taxes 11,089 1.8% 15,239 2.3% 1,418 0.2% -10,957 -1.3% -68  Net income $16,634 2.8% $22,859 3.5% $2,126 0.3%($16,435)-1.9%($102)  

The common size income statement indicates that the firm’s cost of goods sold has increasedquite a bit since 1997. Miscellaneous expenses have also increased from .3% of sales to 1.5% of sales. On the other hand, selling and administrative expenses and interest charges have comedown a bit. The firm needs to look...
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