Question

Exhibit le Sea & Snow Sports, Inc.- Income Statements Years Ended December 31, 1995-19974 and Three Months Ended March 31, 1998 (Dollar figures in thousands) Sales Cost of goods sold Gross profit 1995 S 926 (685) S 241 1996 $1069 812 $ 257 1997 $1464 1127 $ 337 3 Mo. 1998 $ 454 3(54) $ 100 Operating, selling, and administrative expense Rent expense Less: Sales discounts given Plus: Purchase discounts taken Operating profit (98) (41) (23) 7 S 86 (129) (42) (25) 8 $ 69 (187) (46) (24) 10 $ 90 (62) (13) (7) 2 $ 20 Interest expense Earnings before taxes Taxes Earnings after taxes S 69805 tagasi (1) $ 68 27 41 86 34 52 (1) $ 89 (36) 53 $ 20 (8) 12 Dividends Retained earnings (27) 25 30 23 (6) 6 25 *Cost of goods sold can be computed as follows: Beginning inventory 122 153 181 Plus : Purchases 716 840 1209 838 993 1390 Less : Ending inventory (153) (181) Equals : Cost of goods sold $ 685 $ 812 $1127 "Includes rental payments on lease which calls for a base payment of $30,000 plus 5% of gross profit each year. 2632 388 651 297 $ 354 263 Depreciation expense is negligible. The interest rate on the bank loan is 7% per year. Interest expense has been about $700 per year. As the size of the loan increases, interest expense will become a more consequential item on the income statement. The tax rate for S&SS is 40% of earnings before tax.. Tibility: Unavailable

Answer 1

FIRST 4 QUESTIONS ANSWERED:

Ans-1

1995 1996 926 1069 241 26% DETAILS Sales Gross Profit % Margin Operating Profit % Margin Earnings After Tax % Margin 257 24% 69 1997 1998-Qtr 1464 454 337 100 23% 22% 90 20 6% 4% 53 12 4% 3% 86 9% 52 6% 6% 41 4%

As is clear there is a clear declining trend at all levels.In absoulte terms Sales are are up but the same are not helping improve the margins.

Ans-2

1995 1996 926) 1069 DETAILS Sales Operating Expenses % of Sales 1997 1998-Qtr 1464 454 -187 -62 13% 14% -98 -129 12% 11%

Operating expenses are clearly out of control.This is evident if we see these as a % of Sales.Fromm 11% these are constantly moving upwards and have reached 14% indicating lack of control.

Ans-3

1995 DETAILS Sales Accounts Receivable Days Sales Outstanding 926000 134660 1996 1069000 184240 1997 1998-Qtr Reference 1464000 454000 A 239890 302510 B 60 60 B*365/A, 1998 days considered is 90 53 63 62820 213750 Accounts Payable COGS Days Payable Outstanding 685000 104570 812000 47 1127000 69 3012901C 354000 D 77 D*365/c, 1998 days considered is 90 33

Days Sales outstanding is on a rise indicating that on average it takes two months to collect the sales and these are at constant levels over the years.

Days Payable outstanding have been increasing indicating better credit terms with Suppliers and cash staying within organization for longer period and hence available for alternative uses.

Ans-4

DETAILS 1995 1996 812000 685000 COGS Inventory Inventory Turnover 1997 1998-Qtr 1127000 354000 E 263400 297340 F 85 76 F*365/E,1998 days considered is 90 153150 82 180760 81

Inventory turn over days are also stable meaning that Company is able to maintain Inventory levels are as per strategy.