Questions for Clarkson
Assignment:
At a minimum, be sure to develop the following financial statements:
1) Statement of cash flows for 1994 and 1995. If you want you can do a sources and uses of
funds statement.
2) Pro-forma income statement and balance sheet for 1996; use the bank loan as the plug.
To develop your pro-forma statements assume that 1996 sales will be $5.5 million and that Mr.
Clarkson will take all discounts on his purchases from April 1, 1996 to December 31, 1996.
State any other assumptions that you make. Finally, assume that the new bank loan will replace
the existing bank loan and will also be used to pay off all notes payable to trade creditors and
the loan from Mr. Holtz.
3) It will be helpful to compute a few financial ratios. I’ll let you decide on which ones to focus
on. Also a common size balance sheet and income statement might be helpful.
Based on your analysis, address the following questions.
4) Why is the Clarkson Company short of funds despite its record of profitable operations?
5) How has Mr. Clarkson met the financing needs of the company during the period 1993-1995?
How has the financial condition of the company changed over this period?
6) What size of loan would Clarkson need to fund its expansion?
7) What course of action would you recommend?