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Cariboo Industrial Case Solution

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We have calculated relevant ratios analysis in regards to Cariboo Industrial (“CI”) liquidity, assets management, long term debt paying ability and profitability. Below are the summary of our work:

Liquidity Ratio:

Current ratio of CI for the 2001, 2002 and 2003 are 2.03, 0.42 and 0.21 respectively. The ratio figures indicate CI ability to pay it’s short term liabilities commitment. If a ratio figure is high preferably a ratio of 2, it indicates a good liquidity situation. However, for CI, the ratios in showing a declining trend and for 2003 it is at 0.21. In other word, CI can only pay 21cents for every RM1 of it’s short term liabilities in 2003.

In addition, if CI were to take into consideration of it’s quick ratio (i.e CI ability to pay short term liabilities immediately without selling inventory) the ratio is also not favorable. CI quick ratio show a ratios of 1.20 (2001), 0.29 (2002) and 0.91 (2003).

The following ratios is further supported by the declining of CI cash as shown in the horizontal analysis of the balance sheet between 2001 and 2002 a reduce of 321,000 (-55.06%) and between 2002 and 2003, a reduce of $424,000 (-266.67%). A vertical analysis of 2001, 2002 and 2003 in CI cash against the total asset also show a declining percentage to 3.35%, 0.73% and 0.16%. Other assets also show a declining percentage (please refer to attachment 2 of horizontal and vertical analysis)

However based on the vertical analysis, a notable increase was noted in the account receivables i.e. 2001 (15.95%), 2002 (8.48%) and 2003 (14.72%) of the total assets. However this figure could be overestimated due the the fact that a considerable sales were made to fictitious company and the sales were later written off. Another notable increase was in the Property, Plant and Equipment (“PP&E”) for 2001 (85.49%), 2002 (97.06%) and 2003 (94.23%) of the total

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