Mark X Finance Case
Mark X Finance Case
Mark X Case
Throughout the Mark X case we evaluated the companys financials. We were asked to find evidence that would convince their bank to extend the firms line of credit. After filling out the 1992 common size date we will understand what kind of condition the Mark X Company is in. We are to fill in the projected figures for the 1993 and 1994 financials so the bank can understand where Mark X expects to take their company in the coming years.
First, we used existing formulas in the model which referenced the provided financial statements to complete tables 3-6. We then analyzed the strengths and weaknesses of the company in table 6. Based on our analysis of the historical ratios in comparison of industry average, our initial conclusion was that the bank should not lend the requested funds to Mark X. Specifically; the debt ratio is significantly higher than the industry average.
The company forecasted their numerous changes to be made over the next few years, including lower cost of goods sold, increase in sales and trimming of wasteful spending. These changes should in turn boost the company to industry standards which would allow the bank to grant the short term loan.
Based on the forecasts developed earlier the Mark X Company should be able to retire all of the outstanding short-term debt by December 31, 1993. If all of the forecasts become a reality in the coming years it is absolutely possible that they can repay loans at a constant rate. It is extremely important that Mark X continues to pay off short term loans on time. If the start to miss payments they will fall below the contractual agreements with the bank which will possibly force them into bankruptcy. In the situation that the bank does withdraw the entire line of credit and demand immediate repayment of all short-term debt it will ultimately force Mark X into bankruptcy. They can possibly sell more shares of stock to regain the lost capital but its likely that their share value will be so diluted the incoming money will not be enough to save the company.
After an extensive ratio analysis we wanted to make sure there werent any outside factors indirectly affecting the company. During a recession the ratios tend to dip below industry standards, but Mark X in itself was worse