The Mark X Company (A)
We must analyze past data and provide expected data for the next two years to assess Mark X Company's financial position. Upon reviewing the data, we will make recommendations for both Mark X Company as well as Karen Dennison of Wells Fargo Bank. Senior management needs compelling evidence that shows the current difficulties faced by the company are not permanent.. It must also be accessed if Mark X can retire all of its outstanding loans by the end of 1993. A sensitivity analysis should also be conducted since the future of this company is very dependent on its performance in 1993 and 1994.
Mark X Company is a manufacturer of farm and specialty tailors. Over 85% of sales come from the western part of the
…show more content…
The company’s inventory ratio is 4.19 in 1992 compared to the industry average 7.0. This means that inventory could be poorly controlled or might be old. This ratio is so low because the inventory level is relatively substantial and this brings down the ratio. The inventory turnover ratio in terms of cost is 3.58 compared to the industry average of 5.7. FA Turnover is slightly above the industry average. This ratio measures sales to net fixed assets; the greater the turnover, the greater the utilization of fixed assets. Here, Mark X Company did a good job utilizing its fixed assets. TA Turnover however is slightly below the industry average. This is caused by excessive current assets (A/R and inventory) and therefore the turnover rate is lower. DSO represents the average number of days from a sale until cash is received (receivables/average credit sales per day). DSO for 1992 was almost 54 days compared to the industry average of 32 days. This number was so high because receivables collected were relatively high compared to the average sales per day. It is evident that Mark X Company does not collect fast enough and has a poor credit policy. Cash flow is imperative to good performance.
Profitability Ratios: Profit margin measures net income/sales. The profit margin fell all the way to .39% whereas the industry average is 2.9%. This is very bad. The profit margin is so low because net