Financial Analysis and Forecasting – Sweet Dreams Incorporated.
Sweet Dreams Incorporated (SDI) is mattresses and box springs manufacturer in southeastern part of the US. SDI's financial problems began with the recession of the early 1990's. In 1994, under pressure of low sales, inelastic demand, and increased inventories, SDI decided to relax its credit standards and expand its fixed assets funded by taking long-term and short-term loans from the First International Bank. These actions bogged down the company into low sales, large inventory, and high COGS. Having a need to finance its rising inventories, accounts receivable, and having insufficient funds to cover planned asset expansion, SDI began to delay its payments to the First International Bank, its loan supplier. .
Ingrid Diaz, vice president of First International Bank gave an opportunity for SDI to explain current financial situation and to show the bank a tactical plan to recover stable financial position.
Question 1.
Complete the 1995 columns of Tables 3 through 6, disregarding for now the projected data in the 1996 and 1997 columns. If you are using the spreadsheet model, use it to complete the tables. Be sure you understand all the numbers, as it would be embarrassing (and harmful to your career) if you were asked how you got a particular number and you could not give a meaningful response.
Response: .
Question 2.
On the basis of information in the case and on the results of your calculations in Question 1, list SDI's strengths and weaknesses. In essence, you should look at the common size statements and each group of key ratios (for example, the liquidity ratios) and see what those ratios indicate about the company's operations and financial condition. As a part of your answer, use the extended DuPont equation to highlight the key relationship.
Response: .
Common-Size Balance Sheet.
A closer look at the common-size balance sheet shows that The cash and marketable securities percentage of total assets decreased every year while the inventory percentage grew.
