• Assess the situation
• Analyze the issues
• Conclude and recommend
• Have an Appendix Section showing all your calculations.

Case Study:

You have inherited money from your grandparents, and a friend suggests that you consider buying shares in Galena Ski Products, which manufactures skis and bindings. Because you may need to sell the shares within the next two years to finance your university education, you start your analysis of the company data by calculating (1)working capital, (2) the current ratio, and (3) the quick ratio.

Galena's statement of financial position is as follows:
	Current assets
	Cash	$ 154,000
	Inventory	185,000
	Prepaid expenses	21,000
	Non-current assets
	Land	50,000
	Building and equipment	145,000
	Other	15,000
	Total	$ 570,000
	Current liabilities	165,000
	Long-term debt	190,000
	Share capital	80,000
	Retained earnings	135,000
	Total	$ 570,000

Here are some questions you need to answer while formulating your responses:

a) What amount of working capital is currently maintained? Comment on the adequacy of this amount.

b) Your preference is to have a quick ratio of at least 0.80 and a current ratio of at least 2.00. How do the existing ratios compare with your criteria? Based on these two ratios, how would you evaluate the company's current asset position?

c) The company currently sells only on a cash basis and had sales of $900,000 this past year. How would you expect a change from cash to credit sales to affect the current and quick ratios?

d) Galena's statement of financial position is presented just before the company begins making shipments to retailers for its fall and winter season. How would your evaluation change if these balances existed in late February, following the completion of its primary business for the skiing season?

e) How would Galena's situation as either a public company or a private company affect your decision to invest?