Ricardo Refrigeration
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Ricardo Refrigeration
Ricardo Refrigeration is looking to expand its facility to meet the demand of projected sales for the upcoming year. The last two years of Ricardo Refrigerations operations have continued to show a trend of downward sales and demand for the product. This is after the company tried intense marketing, large discounts and extending credit to the customers. After carefully reviewing the enclosed information on Ricardo Refrigerations Income Statement and Balance Sheet, I am not going to sanction the $1,000,000 loan as requested by Ricardo Refrigeration.
Income Statement Analysis
In reviewing the Income Statement, the cost of goods sold (COGS) has continued to rise from 1996 to 1997 as well as it is projected to rise in 1998. It is projected to be 3.64% above the Peer Common Size. Gross profits continue to be going down and are expected to be the same for the 1998 projection as they were in the previous year. The gross profit for Ricardo is more than 3% below the Peer Common Size.
Selling and Administrative expenses are also continuing to rise but are relatively close to the Peer Common Size. Operating profit for the past two years continued to drop well below the standard, even with the less than one percent increase in Common Size for the projected year, it is more than half of the Peer Common Size.
Balance Sheet Analysis
Cash seems to be stable for the past two years and the projection looks to be the same. Accounts receivables had a 3.5% increase from 1996 to 1998 but is looking to take .06% drop for 1998. Inventory took a large increase from 1996 to 1997 and for wanting to expand the companys facility, it looks like the inventory is going to take a large decrease for the upcoming year. With inventory being cut and accounts receivables going down, as well as gross profit not taking an increase, it would be hard to justify loaning such a substantial amount of money to a company that is in some financial trouble.
Fixed assets had a large decrease from 1996 to 1997 and are projected to have a tremendous increase for 1998, even above the industry average.
Accounts payables were right near the industry average of 15% in 1996 but have grown to 20.80% in 1997. Even with the projected 1998, Ricardo will still have more than the industries average by almost 3%. Notes payables have been fluctuating during the past few years as well.
Total liabilities have