Please NOTE that for DSO Ratio use 360 days as opposed to 365

Given the following information , please answer the following for the '02 & '03 years.

As a given , assume the company extends 15 day terms on receivables

and the industry median for Profit margin is 2% ; for current ratio is 1.5x

Use ratios to support your answers

(a) If one of the bank covenants requires a maximum Debt/Equity ratio of 2x; were they in

compliance for the '03 year. If so how much more could they borrow.

(b) How long does it take for the company to collect their receivables

		ABC Company
		Income Statement
	For the years ended December 31 , 2002 & December 31,2003
		12/31/02		12/31/03
Sales		5,000,000		5,500,000
COGS		4,250,000		4,675,000
Gross Profit		750,000		825,000
S & G Exp		500,000		550,000
Depreciation		50,000		75,000
EBIT		200,000		200,000
Interest		25,000		20,000
EBT		175,000		180,000
Gain /Loss on sale of Assets		0		-150,000
Taxes		70,000		12,000
EAT		105,000		18,000
Dividends		1,000		1,000
			ABC Company
			Balance Sheet
		12/31/02		12/31/03
Current Assets:
Cash		125,000		25,000
A/R		225,000		675,000
Inventory		100,000		150,000
Total Current Assets		450,000		850,000
Net Plant & Equipment		500,000		450,000
Total Assets		950,000		1,300,000
Current Liabilities
A/P		200,000		250,000
Accrued Expenses		100,000		50,000
Total Current Liabilities		300,000		300,000
Long term Liabilities		325,000		558,000
Total Liabilities		625,000		858,000
Stockholders Equity
Common Stock		10,000		30,000
Capital in excess of Par		65,000		145,000
Retained Earnings		250,000		267,000
Total Stockholders Equity		325,000		442,000
Total Liabilties & Stockholders Equity		950,000		1,300,000