Avery Products, Inc.
1. Calculate the key financial ratios for Avery Products, Inc., for each year and ratio suggested in the case’s industry averages. Analyze the trends for each ratio.
2. What strengths and weaknesses are revealed by the ratio analysis? • Quick Ratio: The ratio is declining which reflects higher liabilities and cash flow problems of the company • Current Ratio: The ratio is declining which means that Avery is having problems with liquidity. • Inventory Turnover: The ratio is increasing which shows that Avery has liquidity problems since their inventories are not moving fast enough. • Average Collection Period: The ratio is increasing which shows that Avery has problems with collecting on accounts receivables. • Fixed …show more content…
4. On the basis of your financial analysis, do you believe that the bank should grant the additional loan and extend the entire line of credit to June 30,1997?
Ans.) If Avery products successfully follows industry standards and is able to improve its liquidity situation, then the bank should grant the additional loan and extend the line of credit to June 30, 1997. i.e. If Avery products are able to bring down their ending inventory down and at the same time reduce their expenses (COGS and others) and thus increasing the net profit margin, then only the bank should grant the additional loan and extend the line of credit. If they are not able to follow this, then bank should consider of not giving them additional loan.
5. If the credit extension is not made, what alternatives are open to Avery Products?
Ans.) If the bank decides against the credit extension, the alternatives open for Avery products are: • Collect account receivable: This can be done by offering discounts or other
2. What strengths and weaknesses are revealed by the ratio analysis? • Quick Ratio: The ratio is declining which reflects higher liabilities and cash flow problems of the company • Current Ratio: The ratio is declining which means that Avery is having problems with liquidity. • Inventory Turnover: The ratio is increasing which shows that Avery has liquidity problems since their inventories are not moving fast enough. • Average Collection Period: The ratio is increasing which shows that Avery has problems with collecting on accounts receivables. • Fixed …show more content…
4. On the basis of your financial analysis, do you believe that the bank should grant the additional loan and extend the entire line of credit to June 30,1997?
Ans.) If Avery products successfully follows industry standards and is able to improve its liquidity situation, then the bank should grant the additional loan and extend the line of credit to June 30, 1997. i.e. If Avery products are able to bring down their ending inventory down and at the same time reduce their expenses (COGS and others) and thus increasing the net profit margin, then only the bank should grant the additional loan and extend the line of credit. If they are not able to follow this, then bank should consider of not giving them additional loan.
5. If the credit extension is not made, what alternatives are open to Avery Products?
Ans.) If the bank decides against the credit extension, the alternatives open for Avery products are: • Collect account receivable: This can be done by offering discounts or other