Finance Case Study

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CarltonPolishCasesupplementfinancialstatements.xlsx
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Historical

The Carlton Polish Company
Exhibit 3
The Carlton Polish Company - Historical Financial Data ($000)
Compound
Annual
1976 1977 1978 1979 1980 1981 1982 Growth
Income Statement:
Net Sales $ 3,368 $ 3,885 $ 4,543 $ 5,259 $ 6,492 $ 8,120 $ 9,303 18.5%
Cost of goods sold 1,886 2,231 2,596 2,964 3,772 4,759 5,445 19.3
Selling, general and administrative 1,227 1,359 1,483 1,814 2,150 2,615 3,055 16.4
Operating profit 255 295 464 481 570 746 803 21.1
Interest income 5 7 5 5 7 12 40 41.4
Interest expense 55 78 187 189 203 192 179 21.7
Other income (expense) (36) (19) (9) (16) (7) (9) (22) -7.7
Profit before tax 170 205 273 281 367 557 642 24.9
Taxes 100 118 140 132 212 273 365 24.1
Profit after tax 70 87 133 149 155 284 277 25.9
Dividends 270 23 0 0 0 0 0 -100.0
IRS settlement 0 0 0 0 0 0 115 NA
Note:
Rental and lease expense (included in cost of goods sold) 149 155 174 157 157 252 343 14.9
Executive salaries (included in SG&A) 336 352 380 406 487 703 795 15.4
Estraordinary lega (included in SG&A) 0 0 0 0 0 0 100 NA
Depreciation and amortization 13 13 13 21 26 38 42 21.6
Balance Sheet:
Cash 94 140 167 77 121 350 459 30.3
Accounts receivable 613 600 739 975 1,029 1,250 1,480 15.8
Inventory 226 264 242 290 352 394 413 10.6
Other current assets 44 41 44 52 82 71 44 0.0
Total current assets 977 1,045 1,192 1,394 1,584 2,065 2,396 16.1
Net plant and equipment 114 104 91 129 126 140 100 -2.2
Other fixed assets 97 88 95 98 81 82 62 -7.2
Total assets 1,188 1,237 1,378 1,621 1,791 2,287 2,558 13.6
Account payable 145 139 168 254 232 342 376 17.2
Current maturities 58 37 52 50 55 55 60 0.6
Other current liabilities 118 177 190 219 244 443 461 25.5
IRS tax settlement 0 0 0 0 0 0 115 NA
Total current liabilities 321 353 410 523 531 840 1,012 21.1
Long-term debt 498 1,450 1,399 1,380 1,387 1,290 1,228 16.3
Shareholders' equity 369 (565) (432) (282) (127) 157 318 -2.5
Tota liabilities and Equity 1,188 1,238 1,377 1,621 1,791 2,287 2,558 13.6
Selected Ratios:
Cost of goods sold/sales 56.0% 57.4% 57.1% 56.4% 58.1% 58.6% 58.5%
Rental expense/sales 4.4 4.0 3.8 3.0 2.4 3.1 3.7
Sales, general and administrative/sales 36.4 35.0 32.6 34.5 33.1 32.2 32.8
Executive salaries/sales 10.0 9.1 8.4 7.7 7.5 8.7 8.5
Operating profit/sales 7.6 7.6 10.2 9.1 8.8 9.2 8.6
Profit before taxes/sales 5.0 5.3 6.0 5.3 5.7 6.9 6.9
Tax rate 59.0 57.6 51.3 47.0 57.8 49.0 56.9
Profit after taxes/sales 2.1 2.2 2.9 2.8 2.4 3.5 3.0
Payout ratio 38.8 26.4 0.0 0.0 0.0 0.0 0.0
Current assets/sales 29.0 26.9 26.2 26.5 24.4 25.4 25.8
Current liabilities/sales 9.5 9.1 9.0 9.9 8.2 10.3 10.9
Total fixed assets/sales 6.3 5.0 4.1 4.3 3.2 2.7 1.7

Proforma

The Carlton Polish Company
Exhibit 4
The Carlton Polish Company - Proforma Financial Data (a) ($000)
Actual Proforma Proforma Proforma Proforma Proforma
Year 1982 1983 1984 1985 1986 1987
Net Sales $ 9,303 $ 10,233 $ 11,257 $ 12,382 $ 13,621 $ 14,983 Increases 10% per year
Cost of goods sold 5,445 5,612 6,173 6,791 7,470 8,217
Rental expense 343 287 250 250 250 250 From footnotes, Exhibit 3
Selling, general and administrative 3,055 2,486 2,735 3,008 3,309 3,640
Executive salaries 795 450 495 545 599 659 Raise 10% per year from
Operating profit 803 1,398 1,604 1,789 1,993 2,217
Interest income 40 0 0 0 0 0
Interest expense:
Existing Debt 179 156 150 142 133 121
Seller note 0 140 140 140 140 128 15-year, 14% seller loan
Proposed bank loan 0 184 147 111 74 37 5-year, 13.5% bank loan
Total interest expense $ 179 $ 480 $ 437 $ 393 $ 347 $ 286
Other income (expense) (22) 0 0 0 0 0
Profit before tax 642 918 1,166 1,396 1,646 1,931
Taxes 365 477 606 726 856 1,004
Profit after tax 277 441 560 670 790 927
Dividends 0 0 0 0 0 0
IRS settlement 115 0 0 0 0 0
Retained earnings 162 441 560 670 790 927
Net working capital (note b) 1,384 1,440 1,584 1,742 1,917 2,108
Total net fixed assets 162 178 196 216 237 261
Debt amortization
Existing debt 60 62 55 62 71 96
Seller note 0 0 0 0 83 83 See Note a below
Proposed bank loan 0 273 273 273 273 273 5-year bank loan
Total amortization $ 60 $ 335 $ 328 $ 335 $ 427 $ 452
Assumptions:
Inflation rate 3.9% 5.0% 5.0% 5.0% 5.0% 5.0%
Average interest rate 13.5 13.5 13.5 13.5 13.5 13.5 Avg. rate (above current)
Growth rate 14.6 10.0 10.0 10.0 10.0 10.0
(COGS-rental)/sales 54.8 54.8 54.8 54.8 54.8 54.8
Rental expense 343 287 250 250 250 250
(SG&A-exec.salaries)/sales 24.3 24.3 24.3 24.3 24.3 24.3
Executive salaries 795 450 495 545 599 659
Operating profit/sales 8.6 13.7 14.2 14.4 14.6 14.8
Profit before taxes/sales 6.9 9.0 10.4 11.3 12.1 12.9
Tax rate 56.9 52.0 52.0 52.0 52.0 52.0
Profit after taxes/sales 3.0 4.3 5.0 5.4 5.8 6.2
Payout ratio 0.0 0.0 0.0 0.0 0.0 0.0
Current assets/sales (note c) 25.8 23.1 23.1 23.1 23.1 23.1 Operating current assets
Current liabilities/sales (note c) 10.9 9.0 9.0 9.0 9.0 9.0 Operating current liabilities
Total fixed assets/sales 1.7 1.7 1.7 1.7 1.7 1.7
a: These projections assume that the purchase price for Jim Miller's one-half interest in the company is $2,5000,000. Jim Miller agrees to accept a not with a value of $1,000,000. The bank agrees to lend $1,365,000. And, excess cash of $135,000 is used to help finance the purchase.
b: Net working capital is defined above to exclude current maturities of long-term debt or notes payable.
c: Actual figures for 1982 include some non-operating current assets and liabilities (e.g., excess cash, short-term debt).

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