After graduating from university and investigating the opportunities available to her, Natalie chooses to work for Koebel's Family Bakery Ltd. She begins the process of familiarizing herself with the business operation and all of the information that is generated to enable her parents to run their business on a day-to-day basis. While at a trade show, Natalie is introduced to Gerry Richards, operations manager of Biscuits, a national food retailer and publicly traded company. After much discussion, Gerry asks Natalie (acting for Koebel's Family Bakery Ltd.) to consider being Biscuits' major supplier of oatmeal chocolate chip cookies. He provides Natalie with the most recent copy of Biscuits' financial statements. He anticipates that Koebel's Family Bakery will need to provide Biscuits with approximately 1,500 dozen cookies a week. Koebel's Family Bakery is to provide a monthly invoice to Biscuits and will be paid approximately 30 days from the date the invoice is received in its Toronto office.
Natalie is thrilled with the offer; however, she is concerned that taking on this additional contractual commitment along with the one that has just recently been negotiated for providing cupcakes will be too much for Koebel's Family Bakery to handle.
Instructions
Natalie has come to you for advice and asks the following questions.
(a) Gerry Richards has provided me with a full set of Biscuits' financial statements. Can you please identify each financial statement included in this package and explain what type of information each one provides?
(b) How do I know that the information included in the financial statements is verifiable and prepared on a timely basis?
(c) I would like to be sure that Biscuits will be able to pay Koebel's Family Bakery's invoices. How can I determine if Biscuits has enough cash to meet its current liabilities? Are there any ratios or financial information I should look at to obtain that information?
(d) Is Biscuits profitable? Are there any ratios or financial information I should look at specifically to obtain that information?
(e) Does Biscuits have any non-current debt? If so, is Biscuits able to pay off both its debt and the related interest on its debt? Are there any ratios or financial information I should look at specifically to obtain that information?
(f) If Koebel's Family Bakery were to sign a contract committing to provide 1,500 dozen cookies a week, what other factors should be considered before accepting the contract?