The ABC company has been in business for over 40years. Sales have been consistent for the last 10 years at $2.1m annually. In addition, the Gross margin has been consistent at 60%. Costs were all consistent- Warehouse costs $250,000, Transportation $150,000, ICC, $150,000 Other Costs $400,000, Combined Taxes and Interest at $100,000. The Assets were: Current-$120,000, Fixed Assets $380,000 and Liabilities were Current at $60,000, Long Term $240,000. Last year the company made a number of changes in the distribution of the product to their customers. This included adding a warehouse and eliminating some 3rd party warehousing.

Here is the email you received from the accountant:

Greetings,

I'm very busy with tax season but here is some information you will need: Sales this last year were $2,200,000 and COGS was $857,000. The sale of our Cincinnati warehouse increased LT assets by $100,000 to $480,000 and new warehouse costs are $328,000. The reduction in mileage and delivery times to the customers decreased our transportation costs to $100,000. Inventory carrying costs grew to $170,000. Other costs to the organization grew to $440,000. Combined Taxes and Interest were the same at $100,000. I haven't had a chance to check the profit levels. Current Assets grew to $152,000 but so did Current Liabilities to $85,000. The purchase of the asset resulted in Long Term Liabilities increasing to $330,000. Anyways very busy got to go.

Saheed

You have been tasked by the owner to do a SPM analysis of this change and determine whether or not it was successful. What ratios and margins should be considered?

Answer rating: 100% (QA)

To determine whether the changes made by ABC Company in the distribution of their product were successful we can perform a financial analysis using key financial ratios and margins Lets calculate and ... View the full answer