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Integrated Case: D’Leon Inc., Part II Financial Statement Analysis: Analyzes D’Leon Inc.'s financial health, discussing management challenges, financial performance, and forecasting future conditions, supported by balance sheets.
Integrated Case
4-25
D‘Leon Inc., Part II
Financial Statement Analysis
Part I of this case, presented in Chapter 3, discussed the situation of D'Leon
Inc., a regional snack foods producer, after an expansion program. D’Leon
had increased plant capacity and undertaken a major marketing campaign in
an attempt to “go national.” Thus far, sales have not been up to the
forecasted level, costs have been higher than were projected, and a large
loss occurred in 2008 rather than the expected profit. Asa result, its
managers, directors, and investors are concerned about the firm’s survival.
Donna Jamison was brought in as assistant to Fred Campo, D'Leon’s
chairman, who had the task of getting the company back into a sound
financial position. D’Leon’s 2007 and 2008 balance sheets and income
statements, together with projections for 2009, are given in Tables IC 4-1
and IC 4-2. In addition, Table IC 4-3 gives the company’s 2007 and 2008
financial ratios, together with industry average data. The 2009 projected
financial statement data represent Jamison’s and Campo's best guess for
2009 results, assuming that some new financing is arranged to get the
company “over the hump.”
Jamison examined monthly data for 2008 (not given in the case), and
9 pattern during the year. Monthly sales were
she detected an impro
rising, costs were falling, and large losses in the early months had turned to
a small profit by December. Thus, the annual data look somewhat worse
than final monthly data. Also, it appears to be taking longer for the
advertising program to get the message out, for the new sales offices to
generate sales, and for the new manufacturing facilities to operate
efficiently. In other words, the lags between spending money and deriving benefits were longer than D’Leon’s managers had anticipated. For these
reasons, Jamison and Campo see hope for the company—provided it can
survive in the short run.
Jamison must prepare an analysis of where the company is now, what it
must do to regain its financial health, and what actions should be taken.
Your assignment is to help her answer the following questions. Provide clear
explanations, not yes or no answers.
Table IC 4-1. Balance Sheets
2009E
Assets
Cash $ 85,632
Accounts receivable 878,000
Inventori 1,216,480
Total current assets $2,680,112
Gross fixed assets 1,197,160
Less accumulated depreciation 380,120
Net fixed assets $817,040
Total assets $3,497,152
Liabilities and Equity
Accounts payable $ 436,800
Notes payable 300,000
Accruals, 408,000
Total current liabilities $1,144,800
Long-term debt 400,000
Common stock 1,721,176
Retained earnings 231,176
Total equity $1,952,352
Total liabilities and equity $3,497,152
Note:
'E” indicates estimated. The 2009 data are forecasts.
2008
$ 7,282
632,160
—1,287,360
$1,926,802
1,202,950
263,160
$_939,790
$2,866,592
$ 524,160
636,808
489,600
$1,650,568
723,432
460,000
32,502
$492,592
$2,866,592
2007
$ 57,600
351,200
—115,200
$1,124,000
491,000
146,200
344,300
$1,468,800
$ 145,600
200,000
136,000
$ 481,600
323,432
460,000
203,768
‘663,768
$1,468,800
