Custom Snowboards

Custom Snowboards Inc. Is requesting the sum of $1,000,000 for an expansion project into its European market. The profitability of a company is very important. In examining this area it is good to look at the company's gross profit margin. This will tell how much revenue is left over after the company has accounted for the cost of all the goods sold. It is the money that is used to take care of any unplanned expenses and savings for future investments. The company has had a moderate gross profit margin of 30.4 % for the past three years; this is saying that the company can handle its present expenses, but I would still rate this as moderate a rating of 1% or more is more desirable and should be the goal. 20% of its business already comes from its European market.. Though it is a down economy, many companies have been able to grow by investing internationally. With the loan, the company will be able to invest more into its already growing European market, expand its market share and increase its profit.

A look at the horizontal analysis and a quick calculation shows that the company has a current ratio of 6.1. What this means essentially is that the company's assets exceeds its liabilities six times. In general a ratio of one is acceptable though it varies by industry. The current figures say that the company has over 6 times the amount of liquid assets to meet the demands of its creditors. If this is not enough there is always the acid test which is calculated to be 5.1 which is excellent.

The ratio analysis shows that the company's inventory turnover was 33.41 in year 13 and 33.33 in year 14. Its industry comparison is 30.4%. While this ratio shows internal strength because it

shows that something is being done to reduce the time, it is still a weakness when compared to its industry comparison who has a 30.4 days. This means that the company is taking a longer time to use its inventory or turn it into a finished product for sale. This is a weakness. Another weakness exposed in the ratio analysis is the company's operating profit margin presently a 1.8%, down from 3.4% and way less than its industry comparative which is presently doing 5.14%

The balance sheet also shows that accounts receivable though it has decreased from $203,343 to $195,132 it is still 2.6 times the current accounts and notes payable. This means that the company can take care of its short term liabilities. If the company can do this, then additional loans can be used in a more efficient manner to

A look at the historical trend analysis shows a 4.1% decrease in net sales from $6,778,100 in year 13 to $6,504,400 in year 14. This is a weakness but in a down economy where many companies have suffered big loss and even closed their doors, this company is showing potential in this area.

A look at the vertical analysis reveals that the general and admin expenses have increased. Example administrative salaries have increased from$220,000 to 250,000 (3.3% to 3.8% ) this is cause for concern because net sales are down and the company should be practicing better cost control.

2. Explain how any risks pointed out by the bank loan officer could be mitigated by the company

It is quite possible that the bank loan officer will raise concerns about certain items on the budget. These issues need to be answered to and addressed in a proper manner and done so to the satisfaction of the bank's loan department because they have the power to grant or not to grant the loan and their decision no doubt rests on these concerns.

A gross profit margin of 30% might be one concern. However if the company is granted this loan, it will be able to expand the company negotiate better prices for its raw material and services because of an increase in the volume of its orders. This will in effect drive down the cost of the final product. When this happens there is no doubt that producing the same or higher quality products at a lower cost, that the company will have a great strategic advantage and be able to grab an even bigger share of the market.

To mitigate the rising cost in admin expenses the company could become more efficient by first calling a company staff meeting and having a senior manager explain to employees the financial state of the company emphasizing that in order to not have to go the rout of downsizing, the company would prefer to put a freeze on wages with the understanding that when the economy improves or rather when the company's financial status improves then the freeze will be lifted. It is quite likely that employees will endorse this move. It is one of the strategies being used by many more organic companies as an alternative to layoffs This would also help the company in the long run because it would have been able to retain employs who possess tacit knowledge that only comes from years of on the job experience. This would save the company future training and development expenses. In addition the company should reduce work hours, limiting it only to the hours of production.

Third, the company could negotiate a better rate on utility expenses. A lower utility rate will help the company save money in the long run that money can be used to help with other company expenses and make the business more profitable.

Though the company is operating in an economic downturn however the forecast from year 14 to 17 predicts a steady growth in net sales of 103%, 102%, and 103.7% for year 15, 16, and 17 respectively. This is a positive. This shows that the market will be there and that there is an opportunity for the company to grow. If the company is able to find the capital to properly invest, it can take advantage of this opportunity and grow.

To improve inventory turnover, can operate or adapt a more lean process. Since the business is a on demand one and goods are made based on orders then it can revamp its ordering process. To do so it could employ the use of a formal system from a company such as APRISO which produces a readymade industry proven process called FlexNet. The FlexNet helps to improve the accuracy of your inventory, it also allows the company to be reactive to market changing conditions and is helps to manage inventory in demand-driven industries. This would be a more efficient way of flushing its inventory and making the business more profitable.

3. Analyze the ratio that will indicate the ability to repay the principal and interest on the 5-year loan.

.A five year loan is considered a long term loan. In order for custom snowboard Inc. to be awarded this loan, the company needs to prove its ability to repay this loan, meaning both the principal and the interest. The main indicator of this is going to be the company's debt to equity ratio. This is a simple examination of how much the company owes compared