Accounting take home midterm

Accounting take home midterm - Mkhitarian 1 Hacob J...

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Mkhitarian 1 Hacob J Mkhitarian 95055616 November 18, 2009 Midterm Exam – Case Study A-Max Paper Pusher, Inc. and Cachet Posh Papers, Ltd. a) Which company is growing faster? How are their growth strategies different? Between these two companies Cachet is growing faster, due to the continuous increase in net profit growth ratio where it grew by 120% from 1995 to 1996 and by 59.09% from 1996 to 1997. On the other hand, A-Max experienced an overall decay in net profit growth since between the years 1995 and 1997 it had a -2.86% change. A-Max actually had a faster immediate growth from 1995 to 1996 where it’s net worth increased by 280; compared to Cachet’s net worth which only increased by 210 from 1995 to 1996. But A- Max’s net profit growth % decreased from 1996 to 1997 by 42.86% (net worth decreased by 80); this decay resulted in the company decreasing by 2.86% after the two years. The two Baker sons both used different strategies to try to make their companies grow for the future. Bart, the owner of A-Max increased its liabilities in order to buy more non-current assets; for example he took out a $500 loan to buy two delivery trucks and to open four mini- warehouses. A-Max’s main growth strategy was to hire new management that developed new marketing ideas in order for them to expand. For example, they hired Bill who was able to attract new major business from school districts and cities. On the other hand, Blake the owner of Cachet was more selective on all aspects of the business, and he actually sold some of his non- current assets. His willingness not to make many drastic changes allowed him to wait for the profits to come in and then he was able to buy a new non-current asset in the form of a new printing facility. This patient strategy by Blake allowed for the Cachet company to experience greater growth later on in the future; while the strategy used by Bart only allowed for the A-Max company to see immediate growth and very little to no growth in the long run. b) How profitable are the new sales in each company? Why? For both companies sales continued to grow exponentially from each year to the next. For Cachet it grew at a much higher rate than it did for A-Max; even the gross profit ratio compared to sales continued to increase after each year. The sales grew from 6000 in 1995 to 7500 in 1997, while the costs of goods sold increased at a much slower rate allowing the company’s gross profits ratio to increase by 2.4% from 1995 to 1996 and to increase by 2.3% from 1996 to 1997. On the other hand, A-Max’s cost of goods sold increased each year at a faster rate than the increase in sales, making the gross profit ratio based on sales decrease each year. The sales increased from 1995 to 1996 by 1,200 and from 1996 to 1997 by 900, while from 1995
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Accounting take home midterm - Mkhitarian 1 Hacob J...

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