MGMT 413, Fall 2019 West Point Supply, Inc. – 2
Based on these financial statements, on her conversations with Mr. Glover, and on her general knowledge of the building and building-supply business, Ms. Lowe and the bank agreed
to loan $120,000 to WPS to help finance the proposed new facilities and the customary seasonal
increase in sales that occurs during the spring and summer of each year. The loan was structured
as a three-year loan, with repayments of principal of $40,000 due on February 1 of 2018, 2019,
and 2020. The loan carries an interest rate of 12 percent per year.
Mr. Glover visited Ms. Lowe periodically throughout 2017 to update the bank on the company’s progress. The new warehouse was completed in May of 2017 and Ms. Lowe participated in the “grand opening” ceremonies. She had been informed in October of 2017 that an especially good sales record was expected for the full year.
Assignment:
a. Use key financial ratios to determine what events occurred during 2017 to affect the
company’s financial position. Ratios are presented in the case packet reading “Financial
Planning, Financial Ratios and Pro Forma Financial Statements” and in RWJ&J.
Be prepared to address at least the following questions:
• Is the company growing?
• Are receivables in control?
• Is inventory in control?
• Are payables being managed prudently ?
• Is the company’s debt usage in control?
• Is cost of goods sold in control?
• Are operating and administrative expenses in control?
• Is the company profitable? Is profitability improving?
In addressing these questions, calculate the ratios for each year’s actual financial statements and for the forecast financial statements. In calculating ratios, use end-of-period balances except for profit ratios.
b. What implications do the deviations from plan and the general 2017 operating results have
for the company and the bank? What financial strategies seem desirable during 2018?
c. If you were WPS’s banker, what would you do?
