Case studies in finance

Financial Earnings & Sales Growth Rate

The table above shows the sales and earnings for the period from 2000 to 2004, along with the growth rates for each of these. As we can see, the net sales growth rate was constantly positive, although there was a short decline in the constantly ascending trend in 2002. The rate varied from 8.3% to 20%. On the other hand, the earnings growth rate was very fluctuant, with often decreasing values, such as in 2001 and 2002, especially the abrupt decrease in 2002.

It would be important to use all three statements, but the cash flow statement would probably be the most immediately necessary one, because it will give Juan a better idea of what money is coming into the company. At the same time, the balance sheet will need to be evaluated, especially in terms of calculating some of the financial leverage ratios.

The operating performance ratios, such as the fixed asset turnover ratio, would be a good starting point in seeing how much the fixed assets of the company are generating net sales. On the other hand, indicators such as sales per employee ratio is also a good way to see how much the human resources are producing.

4. The average industrial benchmark is usually the best case in these situations and this is available, although sometimes under cost, from various companies. Otherwise, some website also provide free such services.

5. The financial ratios should be compared with some of the other competitors' ratios to see how the company is doing in comparison with these, not only the industrial average. At the same time, market analysis should be perform to be able to make a forecast for the future of the company as well.

6. Current ratio = Current assets/current liabilities = 3.79

Fixed asset turnover = Revenue/Fixed assets = 3.378

Debt Ratio = Total liabilities/Total assets = 1.55

Return on Assets = negative

The liquidity and financial ratios are quite solid, especially the current ratio, although the total liabilities are greater with 55% than the total assets. The main problem the company has is that the net income has been negative over the last two years. I would try to use the company's healthy financial situation to limit the negative effects on the loan decision that the operational negative results will have.

7. I would probably not give out the loan, because of the negative net income obtained during 2003 and 2004. Additionally, some of the financial ratios, such as, for example, the very high liquidity ratio, can show that the company also has stock or inventory problems, which add to the overall operational bad situation.

8. Juan should probably work another year with the existing funds because, through the investments made in assets, the income generated is likely to be positive. With the new statement, a new loan can be much easier to obtain.

9. The financial statements give an accounting perspective on things, but do not take into consideration operational or market related issues. This is why it will give just a limited perspective on things.

Elite Personal Training

The business proposal and idea that Menard and Craciun are proposing definitely has its strong points. First of all, there is clearly a niche out on the market for this type of luxury gym facilities. The motivation is not necessarily given by the fact that people want or need specific luxury conditions, but by the fact that, as some of the potential clients have pointed out, sometimes they do not enjoy being in the same large gym with more experienced and trained individuals.

At the same time, it is also a matter of the personal attention that the partners is willing to award to each of the clients, as well as the fact that these will work with individual trainers. With these in mind, it is clear that the partners are moving away from the simple gym idea to include a much more pointed and imaginative idea.

The fact that the trainers already have their own clients at the gym where they work is a good way of starting the clientele basis, assuming that these individuals will likely move on to the newly formed company in order to continue to benefit from their trainers' experience. This could further encourage word of mouth, a most efficient method of marketing, especially when the company does not have that much money allocated to marketing projects.

One of the potential threats on the market is, however, the competition. First of all, London, Ontario is not a large city. With 356,000 individuals, this does not leave a large amount of individuals which will have all the necessary qualities to be included in the company's potential clients (younger age, predisposition to sports and training, medium to high income etc.). Further, the average income of the city is not very high either: with $27,000, one can wonder how these potential clients will also be able to afford a luxury gym.