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Case study - Financial Management and Analysis GsBrow is a publishing company. By the nature of the textbook market, heavy sales are made in the...
Case study - Financial Management and Analysis
GsBrow is a publishing company. By the nature of the textbook market, heavy sales are
made in the fourth quarter of each year for full semester sales. Most sales occur in
September, and again in February for the second semester. In this industry, the actual
printing and binding of a book have fixed cost that make printing many copies more
Since publishing companies cannot reproduce books on demand, GsBrow's policy is to
contract with the printing company to print a fixed number of copies, depending on
expected sales over at least one year and sometimes based on sales over several years.
If the books sell better than expected, the publisher company will order a second or
third printing. The printing company requires to place the publisher order as much as
four months before the books will actually be needed, and reorders will be placed as
much as two months ahead of actual sales. In 2015, the many books were decline in
popularity, and GsBrow got stuck with a large inventory of obsolete books.
GsBrow balance sheet shows the following balances in 2015:
Marketable securities 78,000
Lon-term investments 162,000
The company maintained almost the same amounts of sales for the last three years
which about $3,718,500, where the total current assets were less 25% in 2014 and 54%
in 2013 respectively.
A part of liability side on January 1, 2015 balance sheet of GsBrow is as follows:
Accounts Payable 262,000
Loan (10 years - 4.4%) 1,650,000
The inventory activities for the first quarter of 2015 were as follows:
Purchases Sales Balance
Beginning inventory $112,000
January 22 - cash $401,000 513,000
February 5 - on account $ 63,000
February 25 - cash 183,000
March 30 - cash 19,000
on account 21,000
As you are a financial analyst-consultant:
1. Study the financial policies of GsBrow and demonstrate to which alternative
policies regarding the size of current asset holdings they are implementing.
2. Explain for the Board of Directors how the curves of current assets and
investment holdings have worked during the last three years and why.
3. How you describe the current assets financing policy of GsBrow and if you want
to change this policy, to which extend you can go?
4. Again, explain for the directors using an illustration the company's financing
Keep in mind that the long-term loan is subject to evaluation by the bank each two