Dynashears Case - William Sill AEM 222.1 Case Analysis 14...

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William Sill AEM 222.1 Case Analysis 14 March 2008 Dynashears Problem: Due to an economic recession, an overestimated pro forma balance sheet, and other factors, Dynashears cannot liquidate a million dollar loan back to the bank and is faced with the problem of obtaining another loan from the bank for the upcoming season because it must cover its working capital requirements from July to December. 1. Why was Dynashears unable to repay its bank loan by March 31 st , 1991, as originally forecasted? One of Dynashears main problems is the way they manage their pro forma sheets. On their pro forma balances and income sheets they over estimated sales, profit, retained costs, and even inventories. Referring to the charts, the difference in inventories on the pro forma balance sheet compared to that of actual inventories is huge. At their highest, in January, Dynashears had excess inventories of 924. This causes their liabilities to go up because this is not an asset anymore because it cannot be liquidated. The more excess inventory the more debt. Also, this excess inventory would have been the company’s liquid assets if pro forma were correct allowing Dynashears to invest or pay off their loans. Another justifiable reason Dynashears could not repay its bank loan was the economic recession they were experiencing. This decline is sales hurt them, and they had to get another extension on the loan. It is easily noticeable where this recession had begun. Referring to the chart in the appendix, in December sales were -$426 of what they were presumed to have been in the pro forma statements. Also there was an excess inventory of 816. The pro forma statements were consistently off with almost every
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This note was uploaded on 03/26/2008 for the course AEM 2220 taught by Professor Perez,p.d. during the Spring '06 term at Cornell University (Engineering School).

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Dynashears Case - William Sill AEM 222.1 Case Analysis 14...

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