Brief Background of the Case

Quickfix Auto Parts is an

automobile parts store located
in a mid-sized city in the
mid-western region of the
United States. It has been
operating for 5 years and had
picked up significantly well
over the first 2 years.
Furthermore, the business
operating success, its’ sufficient
cash flow and its’ ability to
grow for the next few
years were fuelled even more
by the positive results of the
auto parts industry and
local forecast in the coming
periods; hence, Andre, the
owner of Quickfix Auto Parts
has used up most of his
available funds in expanding his
store’s size and business
by the third year of operations.
He was well aware that future
growth would have to
be funded now with external
sources of funds. One of the
candidates for sources of
fund would be through a bank
loan. On the contrary, in order
for a commercial bank
to grant such loan, they would
want to assess first the
creditworthiness of the
business. However, over the
past 2 years, the store’s net
income figures had been
negative and its’ cash flow
situation had gotten pretty
weak, thus, in order to raise
funds for future growth, they
should have to present some
pretty convincing
arguments to the bank to
acquire the loan. Andre’s
knowledge to finance and
accounting was very limited,
thereby, to efficiently assess his
business circumstance
and come up with an effective
alternative thereof, he hires
Juan Plexo, a second
semester MBA student, who
had an undergraduate degree in
Accountancy and was
interested in concentrating in
Finance. The following pages
consists the financial
data of Quickfix Auto Parts:
Brief Background of the Case
Quickfix Auto Parts is an
automobile parts store located
in a mid-sized city in the
mid-western region of the
United States. It has been
operating for 5 years and had
picked up significantly well
over the first 2 years.
Furthermore, the business
operating success, its’ sufficient
cash flow and its’ ability to
grow for the next few
years were fuelled even more
by the positive results of the
auto parts industry and
local forecast in the coming
periods; hence, Andre, the
owner of Quickfix Auto Parts
has used up most of his
available funds in expanding his
store’s size and business
by the third year of operations.
He was well aware that future
growth would have to
be funded now with external
sources of funds. One of the
candidates for sources of
fund would be through a bank
loan. On the contrary, in order
for a commercial bank
to grant such loan, they would
want to assess first the
creditworthiness of the
business. However, over the
past 2 years, the store’s net
income figures had been
negative and its’ cash flow
situation had gotten pretty
weak, thus, in order to raise
funds for future growth, they
should have to present some
pretty convincing
arguments to the bank to
acquire the loan. Andre’s
knowledge to finance and
accounting was very limited,
thereby, to efficiently assess his
business circumstance
and come up with an effective
alternative thereof, he hires
Juan Plexo, a second
semester MBA student, who
had an undergraduate degree in
Accountancy and was
interested in concentrating in
Finance. The following pages
consists the financial
data of Quickfix Auto Parts:
Brief Background of the Case
Quickfix Auto Parts is an
automobile parts store located
in a mid-sized city in the
mid-western region of the
United States. It has been
operating for 5 years and had
picked up significantly well
over the first 2 years.
Furthermore, the business
operating success, its’ sufficient
cash flow and its’ ability to
grow for the next few
years were fuelled even more
by the positive results of the
auto parts industry and
local forecast in the coming
periods; hence, Andre, the
owner of Quickfix Auto Parts
has used up most of his
available funds in expanding his
store’s size and business
by the third year of operations.
He was well aware that future
growth would have to
be funded now with external
sources of funds. One of the
candidates for sources of
fund would be through a bank
loan. On the contrary, in order
for a commercial bank
to grant such loan, they would
want to assess first the
creditworthiness of the
business. However, over the
past 2 years, the store’s net
income figures had been
negative and its’ cash flow
situation had gotten pretty
weak, thus, in order to raise
funds for future growth, they
should have to present some
pretty convincing
arguments to the bank to
acquire the loan. Andre’s
knowledge to finance and
accounting was very limited,
thereby, to efficiently assess his
business circumstance
and come up with an effective
alternative thereof, he hires
Juan Plexo, a second
semester MBA student, who
had an undergraduate degree in
Accountancy and was
interested in concentrating in
Finance. The following pages
consists the financial
data of Quickfix Auto Parts:
I. Brief Background of the Case:

Quickfix Auto Parts is an automobile parts store located in a mid-sized city in the mid-western region of
the United States. It has been operating for 5 years and had picked up significantly well over the first 2
years. Furthermore, the business operating success, its’ sufficient cash flow and its’ ability to grow for
the next few years were fueled even more by the positive results of the auto parts industry and local
forecast in the coming periods; hence, Andre, the owner of Quickfix Auto Parts has used up most of his
available funds in expanding his store’s size and business by the third year of operations. He was well
aware that future growth would have to be funded now with external sources of funds. One of the
candidates for sources of fund would be through a bank loan. On the contrary, in order for a commercial
bank to grant such loan, they would want to assess first the credit worthiness of the business. However,
over the past 2 years, the store’s net income figures had been negative and its’ cash flow situation had
gotten pretty weak, thus, in order to raise funds for future growth, they should have to present some
pretty convincing arguments to the bank to acquire the loan. Andre’s knowledge to finance and
accounting was very limited, thereby, to efficiently assess his business circumstance and come up with
an effective alternative thereof, he hires Juan Plexo, a second semester MBA student, who had an
undergraduate degree in Accountancy and was interested in concentrating in Finance. The following
pages consists the financial data of Quickfix Auto Parts:

Table 1

Quickfix Auto Parts

Balance Sheets

ASSETS 2000 2001 2002 2003 2004

           
$155,00 $309,09
Cash and Marketable Securities 0 9 $75,948 $28,826 $18,425
Accounts Receivable 10,000 12,000 20,000 77,653 90,078
Inventory 250,000 270,000 500,000 520,000 560,000
           
$415,00 $591,09
Current Assets 0 9 $595,948 $626,479 $668,503
           
$250,00 $250,00
Land, Buildings, Plant, and Equipment 0 0 $500,000 $500,000 $500,000
(100,000 (150,000 (200,000
Accumulated Depreciation (25,000) (50,000) ) ) )
$225,00 $200,00
Net Fixed Assets 0 0 $400,000 $350,000 $300,000
           
$640,00 $791,09
Total Assets 0 9 $995,948 $976,479 $968,503
LIABILITIES AND EQUITIES          
Short-term Bank Loans $50,000 $145,00 $140,000 $148,000 $148,000
 0
Accounts Payable 10,000 10,506 19,998 15,995 16,795
Accruals 5,000 5,100 7,331 9,301 11,626
           
$160,60
Current Liabilities $65,000 6 $167,329 $173,296 $176,421
           
Long-term Bank Loans $63,366 $98,000 $196,000 $190,000 $183,000
Mortgage 175,000 173,000 271,000 268,000 264,000
$238,36 $271,00
Long-term debt 6 0 $467,000 $458,000 $447,000
           
$303,36 $431,60
Total Liabilities 6 6 $634,329 $631,296 $623,421
           
$320,00 $320,00
Common Stock (100,000 shares) 0 0 $320,000 $320,000 $320,000
Retained Earnings 16,634 39,493 41,619 25,184 25,082
           
$336,63 $359,49
Total Equity 4 3 $361,619 $345,184 $345,082
           
$640,00 $791,09
Total Liabilities and Equity 0 9 $995,948 $976,480 $968,503

Table 2

Quickfix Auto Parts

Income Statements

  2000 2001 2002 2003 2004

Net Sales $600,000 $655,000 $780,000 $873,600 $1,013,376
Cost of Goods Sold 480,000 537,100 655,200 742,560 861,370
Gross Profit $120,000 $117,900 $124,800 $131,040 $152,006
           
Admin and Selling Expenses $30,000 $15,345 $16,881 $43,680 $40,535
Depreciation 25,000 25,000 50,000 50,000 50,000
Miscellaneous Expenses 2,027 3,557 5,725 17,472 15,201
Total Operating Expenses $57,027 $43,902 $72,606 $111,152 $105,736
EBIT $62,973 $73,998 $52,194 $19,888 $46,270
Interest on ST Loans 15,000 15,950 14,000 13,320 13,320
Interest on LT Loans 8,000 7,840 15,680 15,200 14,640
Interest on Mortgage 12,250 12,110 18,970 18,760 18,480
Total Interest $35,250 $35,900 $48,650 $47,280 $46,440
Before-tax earnings $27,723 $38,098 $3,544 ($27,392) ($169)
Taxes 11,089 15,239 1,418 (10,957) (68)
Net Income $16,634 $22,859 $2,126 ($16,435) ($102)
Dividends on Stock 0 0 0 0 0
Addition to Retained Earnings $16,634 $22,859 $2,126 $16,435 $102
EPS (100,000 shares) $0.17 $0.23 $0.02 ($0.16) ($0.00)

Quickfix Auto Parts is a part of

automotive industry whose
primary activity is to
design and to market
automotive parts. The following
are the key financial ratios to
evaluate such business industry
and would also be very relevant
in the process of
this case: debt-to-equity ratio,
and inventory turnover ratio. It
is a good indicator of
how the company is operating,
but in order to determine the
true financial health of
business, other ratios should
also be consider which would
be discussed in-depth in
the following section of this
paper (Maverick, 2021).
Quickfix Auto Parts is a part of automotive industry whose primary activity is to design and to market
automotive parts. The following are the key financial ratios to evaluate such business industry and
would also be very relevant in the process of this case: debt-to-equity ratio, and inventory turnover
ratio. It is a good indicator of how the company is operating, but in order to determine the true financial
health of business, other ratios should also be considered which would be discussed in-depth in the
following section of this paper (Maverick, 2021).

II. Point of View

The point of view on this case

study will be on the perspective
of Juan Plexo, a
second semester MBA student,
who had an undergraduate
degree in Accountancy
and was interested in
concentrating in Finance. Based
on the issue of raising funds
for future growth, Juan Plexo’s
main duty is to analyze and
assess the financial data
available in order to make
advices to Andre for making an
effective decision and
alternatives for Quickfix Auto
Parts. Furthermore, the most
common task and
responsibilities that an
undergraduate degree in
accountancy can offer in a
business
entity include evaluating
financial operations to
recommend best-practices,
identify
issues and strategize solutions,
and help organizations run
efficiently, and offer
guidance on cost reduction,
revenue enhancement, and
profit maximization while as
The point of view on this case study will be on the perspective of Juan Plexo, a second semester MBA
student, who had an undergraduate degree in Accountancy and was interested in concentrating in
Finance. Based on the issue of raising funds for future growth, Juan Plexo’s main duty is to analyze and
assess the financial data available in order to make advices to Andre for making an effective decision and
alternatives for Quickfix Auto Parts. Furthermore, the most common task and responsibilities that an
undergraduate degree in accountancy can offer in a business entity include evaluating financial
operations to recommend best-practices, identify issues and strategize solutions, and help organizations
run efficiently, and offer guidance on cost reduction, revenue enhancement, and profit maximization
while as a second semester MBA student, Juan Plexo, can now offer the following aspects: data
analytics, operation management or logistics, and strategic thinking (Miller, 2019& “What can I do with
a finance MBA?”, 2021). To add up, one of the roles that an undergraduate degree in accountancy can
offer includes ensuring the accuracy of financial documents, as well as their compliance with relevant
laws and regulations and preparing and maintaining important financial reports which would enable
Juan Plexo to refer and construct a statement not available in Quickfix Auto Parts so as to develop a fair
assessment of the firm’s financial condition. The following are the key financial statements that he
should prepare and construct:

 Balance Sheets, which list the Quickfix Auto Parts’ investments and sources of financing
using the accounting equation;
 Income Statement, which reports the results of operations;
 Statement of Changes in Stockholder’s Equity, which details changes in owner financing,
and;
 Statement of Cash Flows, which details the sources and uses of cash in terms of three
primary activities: Cash flow from operating activities, Cash flows from investing activities,
and Cash flow from financing activities.

With that, he can provide a better financial support and advises to Andre.

III. Statement of the Problem

This case study will assess and

determine the relevant facts
regarding the
assessment of the available
financial data of Quickfix Auto
Parts. Furthermore, it will
provide the interpretation of the
figures presented in the Balance
Sheet and Income
Statement. Based on the data
provided, this case study will
answer the following
questions:
1. How would Juan Plexo
maintain his objectivity in terms
of providing a course of
action based on the available
data for Quickfix Auto Parts by
assessing the
following:
1.1 How Quickfix Auto Parts is
performing according to their
liquidity ratios?
1.2 How Quickfix Auto Parts is
performing according to their
debt
management ratios?
1.3 How Quickfix Auto Parts is
performing according to their
profitability
ratios?
1.4 How Quickfix Auto Parts is
performing according to their
asset
management ratios?
This case study will assess and determine the relevant facts regarding the assessment of the available
financial data of Quickfix Auto Parts. Furthermore, it will provide the interpretation of the figures
presented in the Balance Sheet and Income Statement. Based on the data provided, this case study will
answer the following questions:

1. How would Juan Plexo maintain his objectivity in terms of providing a course of action based on
the available data for Quickfix Auto Parts by assessing the following:
a. How Quickfix Auto Parts is performing according to their liquidity ratios?
b. How Quickfix Auto Parts is performing according to their debt management ratios?
c. How Quickfix Auto Parts is performing according to their profitability ratios?
d. How Quickfix Auto Parts is performing according to their asset management ratios?

IV. Areas of Consideration

 Means to an End

No one number can accurately capture the qualitative aspect of a business. Ratios cannot hope
to capture the innumerable transactions and events that occur each day between a company
and various parties. It cannot meaningfully convey a company’s marketing and management
philosophies and its human resource activities such as the skills of the employee of Quickfix
Auto Parts. Therefore, in the analysis of Juan Plexo, he should consider to look deeply on the
relationship of the numbers and ratios to better understand the operational factors that drive
financial results. Successful analysis seeks to gain insight into what the Quickfix Auto Parts is
really about and what its’ future portends. The main purpose of this analysis is to understand
the business’ past and present to better predict the future, address the underlying problems,
and provide contingencies. Computing and examining ratio is just one step in that process.

 Nature and Size of the Business

 Quickfix Auto Parts’ Strategies

 Competition

 Industry

V. Alternative Course of Action

Common-sized Analysis

Quickfix Auto Parts

Common-size Balance Sheet
December 31, 2000-2004
ASSETS 2000 2001 2002 2003 2004
 Cash and Marketable Securities 24.22% 39.07% 7.63% 2.95% 1.90%
Accounts Receivable 1.56% 1.52% 2.01% 7.95% 9.30%
Inventory 39.06% 34.13% 50.20% 53.25% 57.82%
Current Assets 64.84% 74.72% 59.84% 64.16% 69.02%
Land, Buildings, Plant, and Equipment 39.06% 31.60% 50.20% 51.20% 51.63%
Accumulated Depreciation -3.91% -6.32% -10.04% -15.36% -20.65%
Net Fixed Assets 35.16% 25.28% 40.16% 35.84% 30.98%
100.00
Total Assets 100.00% 100.00% 100.00% % 100.00%
LIABILITIES AND EQUITIES
Short-term Bank Loans 7.81% 18.33% 14.06% 15.16% 15.28%
Accounts Payable 1.56% 1.33% 2.01% 1.64% 1.73%
Accruals 0.78% 0.64% 0.74% 0.95% 1.20%
Current Liabilities 10.16% 20.30% 16.80% 17.75% 18.22%
Long-term Bank Loans 9.90% 12.39% 19.68% 19.46% 18.90%
Mortgage 27.34% 21.87% 27.21% 27.45% 27.26%
Long-term debt 37.24% 34.26% 46.89% 47% 46%
Total Liabilities 47.40% 54.56% 63.69% 64.65% 64.37%
Common Stock (100,000 shares) 50.00% 40.45% 32.13% 32.77% 33.04%
Retained Earnings 2.60% 4.99% 4.18% 2.58% 2.59%
Total Equity 52.60% 45.44% 36.31% 35.35% 35.63%
100.00
Total Liabilities and Equity 100.00% 100.00% 100.00% % 100.00%
Table 3. Common-sized Balance Sheet (Source: Quickfix Auto Parts Annual Report: 2000-2004)

Findings on Common-sized
Balance Sheet
Quickfix Auto Parts’ Common-
sized Balance Sheet facilitates
the comparison of
accounts within the Balance
Sheet. The following are the
findings of this analysis:
TOTAL ASSETS
2000
For every dollar of assets
invested, $0.24 came from Cash
and Marketable Securities,
$0.02 from Accounts
Receivable, $0.39 from
Inventories, $0.39 from Land,
Buildings,
Plant, and Equipment, and
$0.04 from Accumulated
Depreciation- Land, Buildings,
Plant, and Equipment.
2001
For every dollar of assets
invested, $0.39 came from Cash
and Marketable Securities,
$0.02 from Accounts
Receivable, $0.34 from
Inventories, $0.32 from Land,
Buildings,
Plant, and Equipment, and
$0.06 from Accumulated
Depreciation- Land, Buildings,
Plant, and Equipment.
2002
For every dollar of assets
invested, $0.08 came from Cash
and Marketable Securities,
$0.02 from Accounts
Receivable, $0.50 from
Inventories, $0.50 from Land,
Buildings,
Plant, and Equipment, and
$0.10 from Accumulated
Depreciation- Land, Buildings,
Plant, and Equipment.
2003
For every dollar of assets
invested, $0.03 came from Cash
and Marketable Securities,
$0.08 from Accounts
Receivable, $0.53 from
Inventories, $0.51 from Land,
Buildings,
Plant, and Equipment, and
$0.16 from Accumulated
Depreciation- Land, Buildings,
Plant, and Equipment.
2004
For every dollar of assets
invested, $0.02 came from Cash
and Marketable Securities,
$0.09 from Accounts
Receivable, $0.58 from
Inventories, $0.52 from Land,
Buildings,
Plant, and Equipment, and
$0.21 from Accumulated
Depreciation- Land, Buildings,
Plant, and Equipment.
The findings from 5 consecutive
years reveal that the decrease in
Cash and Marketable
Securities in the third operations
was due to the increase in Land,
Buildings, Plant, and
Findings on Common-sized Balance Sheet

Quickfix Auto Parts’ Common-sized Balance Sheet facilitates the comparison of accounts within the
Balance Sheet. The following are the findings of this analysis:

TOTAL ASSETS

2000

For every dollar of assets invested, $0.24 came from Cash and Marketable Securities, $0.02 from
Accounts Receivable, $0.39 from Inventories, $0.39 from Land, Buildings, Plant and Equipment, and
$0.04 from Accumulated Depreciation- Land, Buildings, Plant and Equipment.
2001

For every dollar of assets invested, $0.39 came from Cash and Marketable Securities, $0.02 from
Accounts Receivable, $0.34 from Inventories, $0.32 from Land, Buildings, Plant and Equipment, and
$0.06 from Accumulated Depreciation- Land, Buildings, Plant and Equipment.

2002

For every dollar of assets invested, $0.08 came from Cash and Marketable Securities, $0.02 from
Accounts Receivable, $0.50 from Inventories, $0.50 from Land, Buildings, Plant and Equipment, and
$0.10 from Accumulated Depreciation- Land, Buildings, Plant and Equipment.

2003

For every dollar of assets invested, $0.03 came from Cash and Marketable Securities, $0.08 from
Accounts Receivable, $0.53 from Inventories, $0.51 from Land, Buildings, Plant and Equipment, and
$0.16 from Accumulated Depreciation- Land, Buildings, Plant and Equipment.

2004

For every dollar of assets invested, $0.02 came from Cash and Marketable Securities, $0.09 from
Accounts Receivable, $0.58 from Inventories, $0.52 from Land, Buildings, Plant and Equipment, and
$0.21 from Accumulated Depreciation- Land, Buildings, Plant and Equipment. The findings from 5
consecutive years reveal that the decrease in Cash and Marketable Securities in the third operations was
due to the increase in Land, Buildings, Plant, and Equipment. Furthermore, the data also reveals the
increase in inventory every period that it constitutes already mostly of the assets.

TOTAL LIABILITIES AND

EQUITY
2000
For every dollar of assets
invested, it owes $0.08 to Short-
term Bank Loans, $0.02 to
Accounts Payable, $0.01 to
Accruals, $0.10 to Long-term
Bank Loans, $0.27 to
Mortgage, and $0.53 to its’
shareholders.
2001
For every dollar of assets
invested, it owes $0.18 to Short-
term Bank Loans, $0.01 to
Accounts Payable, $0.01 to
Accruals, $0.12 to Long-term
Bank Loans, $0.22 to
Mortgage, and $0.45 to its’
shareholders.
2002
For every dollar of assets
invested, it owes $0.14 to Short-
term Bank Loans, $0.02 to
Accounts Payable, $0.01 to
Accruals, $0.20 to Long-term
Bank Loans, $0.27 to
Mortgage, and $0.36 to its’
shareholders.
2003
For every dollar of assets
invested, it owes $0.15 to Short-
term Bank Loans, $0.02 to
Accounts Payable, $0.01 to
Accruals, $0.19 to Long-term
Bank Loans, $0.27 to
Mortgage, and $0.35 to its’
shareholders.
2004
For every dollar of assets
invested, it owes $0.15 to Short-
term Bank Loans, $0.02 to
Accounts Payable, $0.01 to
Accruals, $0.19 to Long-term
Bank Loans, $0.27 to
Mortgage, and $0.36 to its’
shareholders.
At the end of 2004, 64.37 % of
total assets were financed with
liabilities---up from 47.40
% in 2000. This change was
largely due to an increase in
Short-term Bank Loans and
Long-term Bank Loans from
7.81 % and 9.90 % of total
assets in 2000 to 15.28 % and
18.90 % respectively, in 2004.
This increasing debt levels
becomes a concern on the
part of Quickfix Auto Parts
because of its profits and cash
flows that are not growing fast
enough to cover the rising debt
payments
TOTAL LIABILITIES AND EQUITY

2000
For every dollar of assets invested, it owes $0.08 to Short-term Bank Loans, $0.02 to Accounts Payable,
$0.01 to Accruals, $0.10 to Long-term Bank Loans, $0.27 to Mortgage, and $0.53 to its’ shareholders.

2001

For every dollar of assets invested, it owes $0.18 to Short-term Bank Loans, $0.01 to Accounts Payable,
$0.01 to Accruals, $0.12 to Long-term Bank Loans, $0.22 to Mortgage, and $0.45 to its’ shareholders.

2002

For every dollar of assets invested, it owes $0.14 to Short-term Bank Loans, $0.02 to Accounts Payable,
$0.01 to Accruals, $0.20 to Long-term Bank Loans, $0.27 to Mortgage, and $0.36 to its’ shareholders.

2003

For every dollar of assets invested, it owes $0.15 to Short-term Bank Loans, $0.02 to Accounts Payable,
$0.01 to Accruals, $0.19 to Long-term Bank Loans, $0.27 to Mortgage, and $0.35 to its’ shareholders.

2004

For every dollar of assets invested, it owes $0.15 to Short-term Bank Loans, $0.02 to Accounts Payable,
$0.01 to Accruals, $0.19 to Long-term Bank Loans, $0.27 to Mortgage, and $0.36 to its’ shareholders.

At the end of 2004, 64.37 % of total assets were financed with liabilities---up from 47.40% in 2000. This
change was largely due to an increase in Short-term Bank Loans and Long-term Bank Loans from 7.81 %
and 9.90 % of total assets in 2000 to 15.28 % and18.90 % respectively, in 2004. This increasing debt
levels becomes a concern on the part of Quickfix Auto Parts because of its profits and cash flows that are
not growing fast enough to cover the rising debt payments

Quickfix Auto Parts

Common-size Income Statement
For the Year Ended December 31, 2000-2004
  2000 2001 2002 2003 2004
100.00 100.00 100.00 100.00 100.00
Net Sales % % % % %
Cost of Goods Sold 80.00% 82.00% 84.00% 85.00% 85.00%
Gross Profit 20.00% 18.00% 16.00% 15.00% 15.00%
Admin and Selling Expenses 5.00% 2.34% 2.16% 5.00% 4.00%
Depreciation 4.17% 3.82% 6.41% 5.72% 4.93%
Miscellaneous Expenses 0.34% 0.54% 0.73% 2.00% 1.50%
Total Operating Expenses 9.50% 6.70% 9.31% 12.72% 10.43%
EBIT 10.50% 11.30% 6.69% 2.28% 4.57%
Interest on ST Loans 2.50% 2.44% 1.79% 1.52% 1.31%
Interest on LT Loans 1.33% 1.20% 2.01% 1.74% 1.44%
Interest on Mortgage 2.04% 1.85% 2.43% 2.15% 1.82%
Total Interest 5.88% 5.48% 6.24% 5.41% 4.58%
Before-tax earnings 4.62% 5.82% 0.45% -3.14% -0.02%
Taxes 1.85% 2.33% 0.18% -1.25% -0.01%
 Net Income 2.77% 3.49% 0.27% -1.88% -0.01%
Table 4. Common-sized Income Statement (Source: Quickfix Auto Parts Annual Report: 2000-2004)

Findings on Common-sized Balance Sheet

Quickfix Auto Parts’ Common-sized Income Statement facilitates the comparison of accounts within the
Income Statement. The following are the findings of this analysis:

2000

For every dollar that Quickfix Auto Parts had sold, $0.80 was Cost of Goods Sold and only $0.20 was
Gross Profit. From that $0.20 of Gross Profit, $0.10 was Operating Expenses, $0.06 was Total Interest,
and $0.02 was Taxes, thus, yielding a Net Income of $.03 for every dollar that Quickfix Auto Parts had
sold.

2001

For every dollar that Quickfix Auto Parts had sold, $0.82 was Cost of Goods Sold and only $0.18 was
Gross Profit. From that $0.18 of Gross Profit, $0.07 was Operating Expenses, $0.05 was Total Interest,
and $0.02 was Taxes, thus, yielding a Net Income of $.04 for every dollar that Quickfix Auto Parts had
sold.

2002

For every dollar that Quickfix Auto Parts had sold, $0.84 was Cost of Goods Sold and only $0.16 was
Gross Profit. From that $0.16 of Gross Profit, $0.09 was Operating Expenses, $0.06 was Total Interest,
and $0.0018 was Taxes, thus, yielding a Net Income of $.0027 for every dollar that Quickfix Auto Parts
had sold.

2003

For every dollar that Quickfix Auto Parts had sold, $0.85 was Cost of Goods Sold and only $0.15 was
Gross Profit. From that $0.15 of Gross Profit, $0.13 was Operating Expenses, $0.05 was Total Interest,
and ($0.01) was Taxes, thus, incurring a Net Loss of $0.02 for every dollar that Quickfix Auto Parts had
sold.

2004

For every dollar that Quickfix Auto Parts had sold, $0.85 was Cost of Goods Sold and only $0.15 was
Gross Profit. From that $0.15 of Gross Profit, $0.10 was Operating Expenses, $0.05 was Total Interest,
and ($0.0001) was Taxes, thus, incurring a Net Loss of $0.0001 for every dollar that Quickfix Auto Parts
had sold.

The data for the past 5 years reveals that mostly of the sales were Cost of Goods Sold and only 15-20 %
are Gross Profit. This shows that the high figures in Cost of Goods Sold could be due to a number of
causes, including unexpected increases of cost of raw materials, and production inefficiencies. While
further analysis would be necessary to determine the exact cause of this change, common-size income
statement reveals the primary source of the drop in Net Income which is the rising Cost of Goods Sold as
a percentage of Net Sales.
Financial Ratios

Table 5. Liquidity Ratio from Year 2000-2004

Year 2000 2001 2002 2003 2004

Ratio          
$415,000.00 $591,099.00 $595,948.00 $626,479.00 $668,503.00
Current Ratio $65,000.00 $160,606.00 $167,329.00 $173,296.00 $176,421.00
6.38 3.68 3.56 3.62 3.79
$165,000.00 $321,099.00 $95,948.00 $106,479.00 $108,503.00
Quick Ratio $65,000.00 $160,606.00 $167,329.00 $173,296.00 $176,421.00
2.54 2 0.57 0.61 0.62
(Source: Quickfix Auto Parts Annual Report: 2000-2004)

Figure 1. Current Ratio from year 2000-2004

Findings about Current Ratio

A ratio greater than 1.0 implies
liquidity. Therefore, based on
the data in Figure 1, the
current ratio of Quickfix Auto
Parts for the year 2000 is 6.38
which indicates that for
every dollar of Current
Liabilities, the aforesaid
business has a 6.38 Current
Asset on
hand. However, in 2001 the
ratio fluctuates to 3.68. It
indicates that Quickfix Auto
Parts
has 3.68 of Current Assets on
hand for every dollar of their
Current Liabilities. This
range of ratio has been
maintained for the next 3
consecutive years. Even though
with
the declining of the
aforementioned ratio in the past
4 years, the figures never fall
less
than one which is a good
indicator that the business has
considerable Current Assets
relative to its Current
Liabilities. On the contrary,
most of its liquid assets were
coming
Findings about Current Ratio

A ratio greater than 1.0 implies liquidity. Therefore, based on the data in Figure 1, the current ratio of
Quickfix Auto Parts for the year 2000 is 6.38 which indicates that for every dollar of Current Liabilities,
the aforesaid business has a 6.38 Current Asset on hand. However, in 2001 the ratio fluctuates to 3.68. It
indicates that Quickfix Auto Parts has 3.68 of Current Assets on hand for every dollar of their Current
Liabilities. This range of ratio has been maintained for the next 3 consecutive years. Even though with
the declining of the aforementioned ratio in the past 4 years, the figures never fall less than one which is
a good indicator that the business has considerable Current Assets relative to its Current Liabilities. On
the contrary, most of its liquid assets were coming from its’ inventory which would imply that Quickfix
Auto Parts may not be efficiently managing its’ inventory, therefore, the management should be mindful
in some aspect like their inventory quality and asset utilization.

Figure 2. Quick Ratio from year 2000-2004

Findings about Quick Ratio

This ratio measures the immediate liquidity of an asset, hence, at Quickfix Auto Parts, it only considers
Cash and Accounts Receivables because they are highly liquid and eliminates inventory because it is not
readily saleable within the usual period of less than 90 days. In the data presented in Figure 2, year 2000
and 2001 resulted to meeting a dollar of short term liability with the 2.54 and 2.00 of Current Assets,
respectively, without resorting to the sale of its inventory. However, in 2002 it drops to 0.57 and
maintain in that range for 3 consecutive years; this result in the utilization of fund for the expansion of
the business in the third year of operation of which never bounce back even in 2004. Compare to the
current ratio, Quickfix Auto Parts under quick ratio have now the difficulty of meeting its current
liabilities. Extending the payments and negotiating with the suppliers for the short term liabilities maybe
an option for the circumstance but the management should be more focus and cautious on the liability
and be efficient with the operations to provide more cash inflows in the business because possible risk
might arise with the supplier if the payments is not meet within the negotiable terms.

Year 2000 2001 2002 2003 2004

Ratio  
$480,000.00 $537,100.00 $655,200.00 $742,560.00 $861,370.00
Inventory Turnover $250,000.00 $270,000.00 $500,000.00 $520,000 $560,000.00
Ratio
1.92 1.99 1.31 1.43 1.54
$10,000.00 $12,000.00 $20,000.00 $77,653.00 $90,078.00
Day Sales $1,643.84 $1,794.52 $2,136.99 $2,393.42 $2,776.37
Outstanding Ratio
6 days 7 days 9 days 32 days 32 days
$600,000.00 $655,000.00 $780,000.00 $873,600.00 $1,013,376.00
Fixed Assets $225,000.00 $200,000.00 $400,000.00 $350,000.00 $300,000.00
Turnover Ratio
2.67 3.28 1.95 2.5 3.38
$600,000.00 $655,000.00 $780,000.00 $873,600.00 $1,013,376.00
Total Assets $640,000.00 $791,099.00 $995,948.00 $976,479.00 $968,503.00
Turnover Ratio
0.94 0.83 0.78 0.89 1.05
Table 6. Asset Management Ratio from Year 2000-2004 (Source: Quickfix Auto Parts Annual Report:
2000-2004)

Figure 3. Inventory Turnover Ratio from year 2000-2004

Findings about Inventory
Turnover Ratio
This ratio measures the number
of times, on average; the
inventory is sold during the
period. Generally, the faster the
inventory turnover, the less cash
a company has tied up
in inventory, and the less
chance of inventory
obsolescence. In the case of
Quickfix
Auto Parts during the 5
consecutive years of operations,
the number of times the
Findings about Inventory Turnover Ratio

This ratio measures the number of times, on average; the inventory is sold during the period. Generally,
the faster the inventory turnover, the less cash a company has tied up in inventory, and the less chance
of inventory obsolescence. In the case of Quickfix Auto Parts during the 5 consecutive years of
operations, the number of times the inventory is sold annually range only between 1.31 – 1.99 times
which means that there are still many inventories that needs to be turned. This indicates that the
inventory is not being managed efficiently. Businesses need inventories to avoid loss sales opportunities;
however, on the part of Quickfix Auto Parts they could conform to the former approach but the
management should also adapt some ways to minimize inventory needs.

Figure 4. Days Sales Outstanding Ratio from year 2000-2004

Findings about Days Sales Outstanding Ratio

This ratio is used to assess the effectiveness of the Quickfix Auto Parts’ credit and collection policies. The
general rule is that the collection period should not greatly exceed the credit term period (the time
allowed for payment) in which case is not available in the data given for the case study. According to the
data presented, during the first 3 years of operations the receivables are collected less than 10 days
whereas for the past 2 years it took quite a long time to collect the money from their customers
compared from the former years. Even though the latter years’ Days Sales Outstanding Ratio are still
within the time frame of 30 – 90 days yet still Quickfix Auto Parts should not allow this to continually
climbed higher but instead find a way in converting it quickly into cash.

Figure 5. Fixed Assets Turn Over Ratio from year 2000-2004

Findings about Fixed Assets Turn Over Ratio

This ratio assesses the Quickfix Auto Parts’ Land, Buildings, Plant, and Equipment productivity and how
efficiently the business operates given its production technology. Based on the data presented, it reveals
that the business is efficiently utilizing its’ long term assets by means of increasing sales. For every dollar
that the fixed asset was utilized, it generates an increasing number of sales in the range of 1.95 – 3.38
for the last 5 years of operation. To continue to increase the Fixed Assets Turn Over Ratio of Quickfix
Auto Parts more, effective maintenance practices should be done.

Figure 6. Total Assets Turn Over Ratio from year 2000-2004

Findings about Total Assets
Turn Over Ratio
This ratio measures how
Quickfix Auto Parts efficiently
uses its assets to generate
sales. As presented on Figure 6,
in 2005 there is an increase in
the productivity of the
Total Assets compared from the
past years. Based on the data, it
shows that for every
dollar invested in assets 1.05 of
Sales was produced. Thus, the
business is being
efficient in generating revenues
from its assets.
Findings about Total Assets Turn Over Ratio

This ratio measures how Quickfix Auto Parts efficiently uses its assets to generate sales. As presented on
Figure 6, in 2005 there is an increase in the productivity of the Total Assets compared from the past
years. Based on the data, it shows that for every dollar invested in assets 1.05 of Sales was produced.
Thus, the business is being efficient in generating revenues from its assets.

Year 2000 2001 2002 2003 2004

Ratio  
$303,366.00 $431,606.00 $634,329.00 $631,296.00 $623,421.00
Total Debt to Total $640,000.00 $791,099.00 $995,948.00 $976,479.00 $968,503.00
Assets
47.40% 54.56% 63.69% 64.65% 64.37%
$336,634.00 $359,493.00 $361,619.00 $345,184.00 $345,082.00
Total Equity to Total $640,000.00 $791,099.00 $995,948.00 $976,479.00 $968,503.00
Assets
52.60% 45.44% 36.31% 35.35% 35.63%
$303,366.00 $431,606.00 $634,329.00 $631,296.00 $623,421.00
Total Debt to Total $336,634.00 $359,493.00 $361,948.00 $345,184.00 $345,082.00
Equity
90.12% 120.06% 175.25% 182.89% 180.66%
Time-Interest $62,973.00 $73,998.00 $52,194.00 $19,888.00 $46,270.00
Earned $35,250.00 $35,900.00 $48,650.00 $47,280.00 $46,440.00
 1.79 2.06 1.07 0.42 1
$10,000.00 $10,506.00 $19,998.00 $15,995.00 $16,795.00
Payable Deferral $1,315.07 $1,471.51 $1,795.07 $2,034.41 $2,236.63
Period
8 days 7 days 11 days 8 days 7 days
Table 7. Debt Management Ratio from Year 2000-2004 (Source: Quickfix Auto Parts Annual Report:
2000-2004)

Figure 7. Total Debt to Total Assets from year 2000-2004

Findings about Total Debt to Total Assets For every dollar of asset, $0.47 was financed by liability in
2000, $0.55 in 2001, $0.64 in2002, $0.65 in 2003, and $0.64 in 2004. This indicates that there is an
increase in the percentage of assets being financed with liability in 2000 – 2004.

Figure 8. Total Equity to Total Assets from year 2000-2004

Findings about Total Equity to Total Assets

For every dollar of asset, $0.53 was financed with equity in 2000, $0.45 in 2001, $0.36in 2002, $0.35 in
2003, and $0.36 in 2004. This indicates that there is a decline in the percentage of assets being financed
with equity in 2000 – 2004.

Figure 9. Total Debt to Total Equity from year 2000-2004

Findings about Total Debt to Total Equity

Quickfix Auto Parts has more liabilities compared to its total shareholder’s equity for the past 5 years as
portrayed by its’ financial statements. Thus, most of the business financing comes from its’ creditors
which would also specify that the business is more on debt financing rather than equity financing.
Probably because of its declining performance in the last 3 years that it seek extra debt financing.

Figure 10. Time Interest Earned from year 2000-2004

Findings about Time Interest Earned

This ratio measures the ability of Quickfix Auto Parts to meet interest payments as they come due by
using the income before income taxes and interest expense. For every dollar of interest, the Quickfix
Auto Parts has a $1.79 in 2000, $2.06 in 2001, $1.07 in2002, $0.42 in 2003, and $1.00 in 2004 of income
before income taxes and interest expense to cover thereof. Thus, to compare in the previous years, in
2004 there is a decrease in the number of times the EBIT can cover its’ interest.

Figure 11. Payable Deferral Period from year 2000-2004

Findings about Payable Deferral Period

Based on the data presented, for the 5 consecutive years, Quickfix Auto Parts were able to maintain the
necessary days on which they need to repay the suppliers. This however indicates that the business was
not able to keep cash to itself for a longer period of time that could be instead invested in some other
productive purposes for a short period of time to earn interest (Borad, 2021).
Table 8. Profitability Ratio from Year 2000-2004

Year 2000 2001 2002 2003 2004

Ratio  
$120,000 $117,900 $124,800 $131,040 $152,006
Gross Profit Margin $600,000.00 $655,000.00 $780,000.00 $873,600.00 $1,013,376
20% 18% 16% 15% 15%
$62,973.00 $73,998 $52,194 $19,888 $46,270
Operating Margin $600,000.00 $655,000 $780,000 $873,600 $1,013,376
10.50% 11.30% 6.69% 2.28% 4.57%
$16,634.00 $22,859 $2,126 ($16,435) ($102)
Profit Margin $600,000.00 $655,000 $780,000 $873,600 $1,013,376
2.77% 3.49% 0.27% -1.88% -0.01%
$16,634.00 $22,859 $2,126 ($16,435) ($102)
Return on Total
$640,000.00 $791,099 $995,948 $976,479 $968,503
Assets
2.60% 2.89% 0.21% -1.68% -0.01%
$16,634 $22,859 $2,126 ($16,435) ($102)
Return on Equity $336,634 $359,493 $361,948 $345,184 $345,082
4.94% 6.36% 0.59% -4.76% -0.03%
$640,000 $791,099 $995,948 $976,479 $968,503
Equity Multiplier $336,634 $359,493 $361,948 $345,184 $345,082
190.12% 220.06% 275.16% 282.89% 280.66%
(Source: Quickfix Auto Parts Annual Report: 2000-2004)

Figure 12. Gross Profit Margin

from year 2000-2004
Findings about Gross Profit
Margin
Based on the data presented, it
reveals that for every dollar of
sales, Quickfix Auto Parts
generate a Gross Profit of $0.20
in 2000, $0.18 in 2001, $0.16 in
2002, $0.15 in 2003,
and $0.15 in 2004. This
indicates that the business has
larger sales than its Gross Profit
because of the deduction of
Cost of Goods Sold. This may
imply that Quickfix Auto
Parts is experiencing some
difficulty in controlling their
cost.
Figure 12. Gross Profit Margin from year 2000-2004
Findings about Gross Profit Margin

Based on the data presented, it reveals that for every dollar of sales, Quickfix Auto Parts generate a
Gross Profit of $0.20 in 2000, $0.18 in 2001, $0.16 in 2002, $0.15 in 2003,and $0.15 in 2004. This
indicates that the business has larger sales than its Gross Profit because of the deduction of Cost of
Goods Sold. This may imply that Quickfix Auto Parts is experiencing some difficulty in controlling their
cost.

Figure 13. Operating Margin from year 2000-2004

Findings about Operating Margin

Based on the data presented, it reveals that for every dollar of sales, Quickfix Auto Parts generate an
EBIT of $0.11 in 2000, $0.11 in 2001, $0.07 in 2002, $0.02 in 2003, and$0.05 in 2004. This indicates that
the business has larger sales than its EBIT, considering that interest and taxes are not deducted yet, this
may imply that Quickfix Auto Parts is experiencing some difficulty in controlling their cost.

Figure 14. Profit Margin from year 2000-2004

Findings about Profit Margin

This ratio measures Quickfix

Auto Parts’ percentage of each
dollar of sales that results
in net income. Based on the
data presented, it reveals that
for every dollar of sales,
Quickfix Auto Parts generate a
Net Income of $0.03 in 2000,
$0.03 in 2001, and $0.003
in 2002 and incur a Net Loss of
$0.02 in 2003, and $0.0001 in
2004. This indicates that
the business has larger sales
than its actual Net Income. This
may imply that Quickfix
Auto Parts is experiencing some
difficulty in controlling their
cost.
This ratio measures Quickfix Auto Parts’ percentage of each dollar of sales that results in net income.
Based on the data presented, it reveals that for every dollar of sales, Quickfix Auto Parts generate a Net
Income of $0.03 in 2000, $0.03 in 2001, and $0.003in 2002 and incur a Net Loss of $0.02 in 2003, and
$0.0001 in 2004. This indicates that the business has larger sales than its actual Net Income. This may
imply that Quickfix Auto Parts is experiencing some difficulty in controlling their cost.

Figure 15. Return on Total Assets from year 2000-2004

Findings about Return on Total Assets

During the first two years, Quickfix Auto Parts was able to maintain their ROA with a value of $.03 for
every dollar of Total Assets invested but there is a sudden drop in the succeeding years. This indicates
that the business encountered some difficulties in utilizing their assets from the year 2002 – 2004.

Figure 16. Return on Equity from year 2000-2004

Findings about Return on Equity

During the first two years, Quickfix Auto Parts was able to maintain their ROE with a value of $.05 and
$0.06 for every dollar of Total Assets invested but there is a sudden drop in the succeeding years. This
implies that the business encountered some difficulties in generating profit to fund their investors more
effectively from the year 2002– 2004.

Figure 17. Equity Multiplier from year 2000-2004

Findings about Equity Multiplier

The Equity Multiplier of Quickfix Auto Parts has been increasing for the last 5 years. This implies that the
business is starting to rely more on debt financing compared to equity financing.

DuPont Analysis

Table 9. DuPont Analysis from Year 2000-2004 (Source: Quickfix Auto Parts Annual Report: 2000-2004)

Year 2000 2001 2002 2003 2004

Ratio  
Return 2.77 % X 93.75 3.49 % x 82.80 0.27 % x 78.32 (0.01 %) x 104.63
(1.88 %) x 89.46 %
on % % % %
 
Assets 2.60% 2.89% 0.21% -1.68% -0.01%
2.60 % x 190.12 2.89 % x 220.06 0.21 % x 275.16 (1.68 %) x 282.89 (0.01 %) x 280.66
Return % % % % %
on Equity  

4.94% 6.36% 0.59% -4.76% -0.03%

Quickfix Auto Parts ROA and ROE are currently negative because of the decline in the Profit Margin for
the last 3 years.

V. Alternative Course of Action

1. Based on the quantitative data, it is reveal that Quickfix Auto Parts is having a hard time in
managing their inventory. The sales continue to increase for the past5 years but the Net Income
were declining because of the Cost of Goods Sold that is reciprocating the increase of Sales. It is
also reveal in the Inventory Turnover Ratio that Quickfix Auto Parts are having a difficulty in
selling their inventory faster on an average period. With that, reducing inventory might be a
possible alternative to elevate the Net Income. This probable solution could be adapting some
asset utilization strategy like the Just-in-time process and Demand-pull production wherein, only
raw materials that are needed in the production line are acquired from the supplier and only
when final goods are demanded by customers that raw materials are released into the
production process. Furthermore, given with the cash situation, the business should be more
cautious when it comes to unexpected increase in inventories; they should limit first their
purchases until the older inventory are sold. In addition, Quickfix Auto Parts could also try to
assess their product cost and try to improve product design to eliminate costly features not
valued by customers to increase turnover.
2. In the Days Sales Outstanding Ratio and Receivable Turnover, it is revealed that for the last 2
years, the receivables collection period and number of times it is collected, rises and decline,
respectively. Given this data, the management should be mindful in their collection policy
especially with the current status of cash that more operating inflows are very necessary. It is to
 be noted that extension of credit is an important tool in the marketing of products, often as
important as advertising and promotion but there are some methods available to speed up
collection from customers:
a. Assess the customers’ liquidity to whom the credit will be extended.
b. Negotiate advance or progress payments from customers.
c. Make sure products are sent as ordered to reduce disputes.
d. Improve the administration of past due accounts to provide for more timely notices of
delinquencies and better collection procedures.
3. Quickfix Auto Parts under quick ratio have now the difficulty of meeting its current liabilities.
Hence, extending the payments and negotiating with the suppliers for the short term liabilities
maybe an option for the circumstance but the management should be more focus and cautious
on the liability and be efficient with the operations to provide more cash inflows in the business
because possible risk might arise with the supplier if the payments is not meet within the
negotiable terms.
4. Fixed Assets Turn Over Ratio of Quickfix Auto Parts reveals the continuing increase of sales
generated for every fixed asset invested; thus, to continue to increase the aforementioned ratio
more, improvement of the efficiency of the fixed asset should be done. This would be possible
through effective maintenance practices of the aforesaid asset, proper assessment and
identification of unproductive and inefficient utilized assets and taking a step unto liquidating it
quickly, and focusing on increasing of sales.
5. In terms of the strong arguments that Quickfix Auto Parts’ needed to obtain a loan necessary for
its’ growth, they should consider on increasing their credit worthiness in terms of liquidity and
solvency by reducing inventory to generate operating cash inflows which is the main problem in
the declining of Net Income. Furthermore, they should also continue to increase sales by
utilizing assets efficiently, and improving collection policy to yield an improved credit worthiness
compared from the past 3 years. Based on the debt ratio and equity ratio, the former is
increasing while the latter is declining; hence, Quickfix Auto Parts should try to increase the
value of stocks by means of fundamental factors such as increasing the business earnings and
profitability from selling goods in order to recapitalize debt with stock in terms of the entity’s
ventures to investing activities in order to reduce debt and increase the solvency of the
business.