Financial Analysis and Forecasting – Sweet Dreams Incorporated

These changes shows that the company is bring in less cash from sales, but buying more inventory. The short term loans percentage of total liabilities and equity slightly increased from 1993 to 1994, but in 1995 the percentage of total liabilities jumped to 17.69%. Accordingly, accounts payable and accruals were steadily rising. Long-term loans decreased in 1995 except for a jump in 1994, and the mortgage percentage was also decreasing (the same trend was observed with mortgage percentage.) This shows that the company was relying less on long-term liabilities and more on short-term liabilities. It may be hard the company to sustain more growth in short-term liabilities unless the company can garner more sales.
             Common Size Income Statement.
             In the time of crisis, a lot of companies try to downsize and cut expenses in order to survive, expand their production capacities in order to get economies of scales, or change credit policy in order to increase sales. After relaxing its credit policy, SDI's inventories and receivables piled up to a level where company was compelled to take additional long-term and short-term loans that were still not sufficient to cover mentioned above growing assets expansion, but drastically decreased company's net income. Another trend in the common size income statements was growing COGS. There are two reasons that could impact growing COGS in 1994-1995: first, relaxed credit policy; and second, increased inventory. Moreover, in parallel with increased COGS, operating expenses negatively impacted EBIT decreasing it to 2.79, in 1995. All of the mentioned above expenses together with increased interest on short-term loans in 1994 shrunk company's net income and earnings per share to the record-breaking 0.87% and 0.38%.
             Cash Flow Statements (1994-1995).
             In 1994 and 1995 there is company faced a decrease in cash and marketable securities. This shows that the company SDI is running short on cash and could run into what can lead to deeper financial difficulties in the future if this doesn't change.