Reference no: EM132202113

Problem -

You are the Credit Department Manager in a company which supplies swimming pool liners. The sales team has presented you with a large order from a new customer, Pools-R-Us. For approximately 12 years, Pools-R-Us has been installing swimming pools in residential neighbourhoods.

The sales team is very eager for you to grant credit to this customer. You know they understand numbers but you are a bit leery of their motivations. Regardless, you are going to have to do the proper due diligence before you make a decision. The sales team has provided you with financial statements for Pools-R-Us and industry ratios (which they obtained from your files). They highlighted to you that sales for Pools-R-Us have increased over the last 3 years due to a more aggressive selling approach.

Use the financial information provided and your knowledge of all areas of financial analysis to make your recommendations.

1. Prepare the following financial exhibits for 2015 through 2017 using excel:

• Ratio table (using relevant ratios in order to support your recommendations above). All ratios should use year-end balances and not averages. Round to one decimal places where appropriate.
• "Detailed" ROE analysis.
• Vertical analysis of income statements (common sized)- Sales expressed as 100% and all items expressed as a percentage of sales.
• Vertical analysis of balance sheets (common sized) - All assets expressed as a percentage of total assets at 100%. Similarly with liabilities and shareholders' equity.
• Horizontal analyses of income statements and balance sheets using 2015 as the base year.

2. Prepare a brief summary by ratio category highlighting your observations and recommendations for areas for improvement. Be sure to comment on the ratios relative to the industry and note any ratios that are cause for concern or require further explanation. Finally, provide a brief explanation of whether you would grant credit.