Caselet 1 — Heavy Manufacturing
Scenario / Financials (■):
Sales: 2,400,000
COGS: 1,440,000
Operating expenses: 360,000
Depreciation: 60,000
Interest: 30,000
Tax rate: 25%
Current assets: 500,000 (Inventory 220,000; A/R 140,000; Cash 60,000; Other 80,000)
Current liabilities: 240,000
Total assets: 1,200,000
Equity: 600,000
Debt: 300,000
Key Ratios (computed):
Gross Margin 40.0%
EBIT Margin 22.5%
Net Margin 15.94%
ROA 31.88%
ROE 63.75%
Current Ratio 2.08
Quick Ratio 1.17
Inventory Days 55.8
DSO 21.3
Debt/Equity 0.50
Interest Coverage 18.0
Interpretation & Recommendations:
- Strong profitability (gross margin 40%, net margin ~16%).
- Efficient asset use (ROA 31.9%, DSO 21 days).
- Comfortable liquidity (CR 2.08, QR 1.17).
- Moderate leverage (D/E 0.5) and safe solvency (interest cover 18x).
Recommendations: tighten inventory (~56 days 45), maintain receivables, reinvest profits,
explain high ROE sustainability.
Caselet 2 — IT Consulting Firm
Scenario / Financials (■):
Sales: 1,500,000
COGS: 300,000
Operating expenses: 600,000
Depreciation: 30,000
Interest: 5,000
Tax rate: 22%
Current assets: 350,000 (A/R 200,000; Cash 90,000; Other 60,000)
Current liabilities: 150,000
Total assets: 700,000
Equity: 400,000
Debt: 250,000
Key Ratios (computed):
Gross Margin 80.0%
EBIT Margin 38.0%
Net Margin 29.38%
ROA 62.96%
ROE 110.18%
Current Ratio 2.33
Quick Ratio 2.33
DSO 48.7
Debt/Equity 0.63
Interest Coverage 114.0
Interpretation & Recommendations:
- Extremely strong profitability (net margin ~29%).
- Very high ROA and ROE, though may reflect low equity base.
- Liquidity strong (CR and QR 2.33).
- DSO ~49 days requires attention for cash flow.
Recommendations: tighten receivables, reinvest or return capital, ensure margins are sustainable.
