Based on Mr. Kolias’ prediction of 20% sales growth in 2017 and 2018 and relying on other assumptions provided in the Great Lakes case, prepare complete pro forma forecast of Great Lakes’ 2017 and 2018 income statements and year-end balance sheets. Assume that any new financing, if needed, will be in the form of bank debt. Assume that all debt (any exisitng or new debt) carries an interest rate of 10%.
Assess the financial health of Great Lakes Indusrial Supply, Inc. in past and forecasted periods. Specifically, calculate the financial ratios defined in the worksheet financial ratios and interpret the results. Will Great Lakes Industrial Supply be in a stronger or weaker financial condition two years from now?
Suppose that the proposed terms of the bank credit included a covenant (a contractual obligation that binds the borrower to specific actions or outcomes as a condition for extending a loan) that read as follows: “The company must maintain net working capital (defined for purposes of this loan as accounts receivable plus inventories minus accounts payable) of at least $4 million. For purposes of this covenant, net working capital will be measured at the end of each fiscal year.” Is Great Lakes likely to be able to satisfy this covenant in both 2017 and 2018?
What would be the impact on Great Lakes’ external funding needs and interest coverage (calculated as EBIT/Interest expense) as of the end of 2017 and 2018 if:
a. Inventory were not reduced by the end of 2017?
b. Great Lakes experienced higher growth in its revenues than was originally anticipated in 2017 and 2018?
c. Days receivables were reduced to 45 days?
d. Accrued Expenses were to grow less than expected in 2017 and 2018?
Expectations for assignment
Accuracy – there are no errors in calculations and data entry.
Technical -The model is fully dynamic and exhibits advanced technical competency.
Formatting- The model is expertly formatted, with good use of color and fonts. There are no inconsistencies. The model is very clear and easy to follow.
Completeness – The analysis provided in the model is complete in that all parts of the assignment are fully addressed.