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Strategic Resource Allocation - Ratio Analysis Assignment

Instructions: (1) Please submit an electronic copy by email and hand in a paper copy of the assignment
in class; (2) Make sure you write down the names of your group members on the first page of your
report; (3) If you make any assumptions, please state them clearly in the write-up; (4) Please be
explicit regarding which formula you are using; (5) The assignment comprises three questions.

QUESTION 1
Consider the financial information for Fiat-Chrysler Automobiles (FCA) reported in the three exhibits below.
Perform a financial ratio analysis for this company. Then, choose the 2-4 ratios that you deem most
significant and indicate what follow-up (if any) you would do if you were advising its senior management.

1
2
Long term Debt/Total Capital - 0.750 0.811 0.341 0.192

QUESTION 3
You have been asked to assess the financial health of this company using ratio analysis. At the end of your
analysis, identify the key challenges the firm is facing and try to suggest potential actions.

INCOME STATEMENT
Years ending December 31, 2013-2015 and 1st Qtr. 2016
2013 2014 2015 1st Qtr. 2016
(a)
Net sales $1,697 $2,013 $2,694 $718
Cost of goods sold:
Beginning inventory 183 239 326 418
Purchases 1,278 1,524 2,042 660
$1,461 $1,763 $2,368 $1,078
Ending inventory 239 326 418 556
Total cost of goods sold $1,222 $1,437 $1,950 $522
Gross Profit 475 576 744 196
(b)
Operating expenses 425 515 658 175
Interest expense 13 20 33 10
Net income before taxes $37 $41 $53 $11
Provision for income taxes 6 7 9 2
(a)
Net income $31 $34 $44 $9
(a) In the first quarter of 2015 net sales were $698,000 and net income was $7,000.
(b) Operating expenses include a cash salary for the owner of $75,000 in 2013, $85,000 in 2014, $95,000 in 2015, and
$22,000 in the 1st quarter of 2016.

BALANCE SHEET
Years ending December 31, 2013-2015 and 1st Qtr. 2016
2013 2014 2015 1st Qtr.2016
Cash 58 49 41 31
Accounts receivable, net 171 222 317 345
Inventory 239 325 418 556
Current assets 468 596 776 932
Property, net 126 140 157 162
Total assets 594 736 933 1,094
Notes payable, bank -- 146 233 247
Notes payable, Mr. Jones 105 -- -- --
Notes payable, trade -- -- -- 157
Accounts payable 124 192 256 243
Accrued expenses 24 30 39 36
Long-term debt, current portion 7 7 7 7
Current liabilities 260 375 535 690
Long-term debt 64 57 50 47
Total liabilities 324 432 585 737
Shareholder equity 270 304 348 357
Total liabilities and shareholder equity 594 736 933 1,094