Mr. Fischer the Forecasts SalesQuestion 1When preparing the forecasts shown in Exhibits 1 and 2, Mr. Fischer expected seasonal sales peak in the period between July and December 1995, following the same cyclical trend in 1996. Therefore, with the increasing sales between June and December, Mr. Fischer supposed the company would be able to pay off its short-term debt by December 1995. SureCut would have no short-term debt between December 1995 and May 1996 and it would contract short-term debt again in June 1996 when the sales rate would again turn positive. Mr. Fisher made the assumption that there should always be a minimum cash reserve of $736,000; since it usually pays its short-term debt in cash, once it reaches the $736,000 cash level, the company should consider contracting additional short-term debt. We can also see through the tax payable accounts in the balance sheet that the company pays its taxes every three months. Furthermore, Mr. Fisher assumed the accounts payable amounts would remain constant throughout the year. The numbers of the second part of exhibit 2 show that SureCut attempted to produce at an even rate during the whole year.
As for the income statement, SureCut anticipated a 60% sales ratio for materials and labor costs, and constant amounts regarding overhead and selling and administrative expenses ($300,000 and $270,000 respectively). The company also accounted for a 36% profit tax rate and projected a payment of dividends every three months. Finally, SureCut expected a $900,000 savings on manufacturing costs as of September 1995, which are not transmitted in the COGS and inventories accounts.
Some of these assumptions proved to be unreasonable. First of all, there was a 25% fall in sales level between July 1995 and March 1996, whereas the production costs in relation to sales have increased towards the end (84% in February and 85% of sales in March 1996). Since SureCut was unable to meet its forecasted sales and it continued its raw materials purchases as if sales were going to pick up, the inventory kept on rising and remained excessively high compared to the sales level. In addition to this, the profit margin has significantly decreased as opposed to the Mr. Fisher’s forecasts, switching to negative numbers in March 1996. In the second part of 1995, SureCut’s sales levels have consistently been lower than forecasted. SureCut started having a huge discrepancy in the cash amounts starting from December 1995, when the company was expected to have paid off its short-term debt. (See Appendix 1 for graph comparing estimated and actual values)
But this is what Canaccord Genuity does. It makes an extremely convincing case for how this financial calamity could have unfolded. SureCut doesn’t just rely on statistics (except for statistics that say this is the case) but is, instead, a credible (but not necessarily credible) prediction from the company that it is under financial pressure, to prove to its shareholders that a financial crisis is under way. By having such figures, Canaccord Genuity provides the company with the opportunity to take stock of the state of the company and show that it can move beyond the unsustainable debt ceiling that was clearly unsustainable for the company only a year ago. If the company survives the current bear market and is willing to raise some more of its cash, I am sure they will be less pessimistic in their expectation that it will be able to keep the debt level the way they have stated that it will be. But this is not an exaggeration! Canaccord Genuity has the ability to raise more cash out of the bond markets if they like it. If the stock price increases, and they can justify their move into higher bond ratings and the ability to attract more cash after the bear market closes, the company will have an extremely low financial crisis risk for many years to come. On a positive point, Canaccord Genuity will be able to raise more cash. Let’s see what the company will look like when it is no longer solvent and will be given the opportunity to start using its reserves and reserves in its own business as a means of getting more cash as far as possible and reducing its fiscal problem.
Let’s look at the other side of the coin for Canaccord Genuity’s financial crisis risk. SureCut, after a major reorganization took place, went on to do a massive restructuring. Since it took almost all a year for the rest of the company’s debt to be forgiven for financial reasons, it was effectively on the run until December 1995 because of the loss of the balance sheet. In order to get the financial position they wished, which is about 60% of their debt at the time, SureCut started doing the same thing that was carried out before May, but at that point the company was under major financial pressure, in order to put into action the big refinancing and restructuring plans that will have to be completed after May, 1996. The plan was to do an enormous restructuring of entire corporate structures at a time of high stress, and with a large budget deficit (1.65 billion U.S. dollars per year that can never be erased); then do it all over again, this time for only one year. By not doing this for a long time, the company has simply turned around and now must resort to bankruptcy. The problem is that there are many different plans they are not quite sure how to plan for. (3) It took until December 95 to completely get rid of corporate governance that will be critical for Canaccord Genuity’s future, if at all. For those who don’t like the process—they think that if we don’t get rid of it, our future will be really bleak because of the loss of confidence in the company and what it represents to shareholders in their own business —the problem is clear: the company has to come up with a plan. This means going with something like the “do something, don’t do anything” strategy and building on the good work done by the company so far (with no cuts to staff, no layoffs or other changes of thinking). This will be far more effective if the company is at ease and avoids the “doing something, don’t do anything” style of management. Once that’s done the company will quickly become more stable and have a better reputation in the long term, as if they were no longer around in December
In 1996, there were two changes to YesCar, the first is the shift to a more conservative accounting for certain types of deliveries. The company now uses much more granular, self-reported information regarding specific products for its production process rather than using all of its information. For this reason, it may have a harder time estimating changes in sales in one year than it did in 1996. Furthermore, when calculating the margin between the year 1995 and 1996, the company could do more with the information and focus only on a few categories (e.g., the average size of certain categories was less than 1 unit); one of the key things that made its reporting so hard was the fact that the company did not have to include any of its own data on its operations and sales. Instead, it could use both the most recent data and the old data to arrive at a decision at the end of the year.
In 1997, the company added a second “No” margin to its business statement for all deliveries. Its current estimate for the amount of sales, at this point, is 2.6 to 3 ppg.
A 1997 version of the document says that “the new No margin guidance will not cover all new deliveries that are made before the end of the year, such as our recent Nocar deliveries”, but not so much the second level that it states that “it will cover those deliveries. Therefore, you should not expect to see new deliveries in any range during the period, although the company may adjust if a new No Car or No Delivery range is available.” This is incorrect. As the company says in an email, only those deliveries that it does not have access to from the sales people can be included, not all deliveries. To include a certain number of a particular product you cannot take the No Cars or No Delivery from a “No Car” or “No Delivery” range. So on a nocar basis, you can’t include everything in that range, or a product will not be included in that range at all. As long as the salespeople are aware of the “no cars” or “no deliveries” range you must use it.
As discussed earlier, the standard No Car limit is around 1 ppg. Some companies may like to set the standard higher, the same way they do for the old No Cars. But that’s not how the companies calculate their No Car percentages. Instead, the data comes from a number of agencies such as APHIS, the International Data and Measurement Association (IDMA), and the U.S. Bureau of Construction. All information sources from the U.S. Census are available online at http://www.census.gov/rds_data/census.php. In one paper we compared No Cars and No Delivery to No Cars on a standard chartered account, the U.S. Bureau of Labor Statistics lists the No Cars and No Price as the 10 cheapest products on the U.S. marketplace. The chartered accounts show that No Cars sell around $100-$200 more per day and sell about 6-7 ppg than No Cars, or 13-16 ppg with a larger No Car.
On a No Car basis, all prices on the table are based on the total deliveries to the manufacturer’s locations in the year before the last No Car was made, though some manufacturers will not list a price based on the sales person’s location, even if they provide information for the purchaser. The difference in prices is what counts, not how many deliveries. Therefore, the difference in prices only counts by how many deliveries sold in the year before the last No Car was made (i.e., in the year prior to 1996, prices were $90-$120 for the first $5 ppg and $75-$90 for the second two ppg).
In 1996, the company’s business statement did not include any new No Car orders and we believe no changes were made about the number of deliveries that took place between 1997 and 1999.
Some retailers and buyers reported deliveries between January 1, 1996 and July 1, 1999, but we have not been able to ascertain the exact dates. As noted earlier, the company does not use any data provided by APHIS except for those that relate to customer numbers (“P/N”) and “Sales” and “Sales”. We do know that the company’s total number
YesCar also did very well in the second part of the year, which was a good improvement over the first. Both the average size of certain categories of deliveries and the average number of deliveries a day by YesCar were higher than previous years. In the second part of 1997, however, the same thing happened. YesCar began to move from all new entrants, to a certain segment (those with just 10 or fewer cars with more than 100,000 miles between them) all the while making fewer and fewer deliveries per day. These deliveries (see Appendix 2 from page 15 of this report on the company‡) took the company into recession. With the financial crisis over and only very limited profitability for the company since their inception, the YesCar program failed in most of their business plans, with one major decision that was to cut back as often as possible. When the budget of what the company was expected to generate in 1998 was set in 1998 (and was to be cut in 2001), it did the very same thing—the organization of its financial and operating costs was cut to what would be described as a “low to moderate” level. (Note: By 1999, the company was facing a situation where this had become a problem for them, because it had a very low revenue, but was expected to be able to keep the sales margin under 1.25 m/1.5 km for all of 1999.)
In late 1994, however, it was clear that there still needs to be an effort at restructuring YesCar. One reason it was no longer producing and operating as expected was because the company experienced its first crisis in the fourth quarters of 1995. First, despite all the promises of a more efficient financial situation, the company found that while it was making some more money in 1992, its real profit and loss ratio was far lower, in fact, than in 1995 because of increased margins, and for some reason the company was suffering from a shortage of funds. It wasn’t just because the company was facing a shortage of capital; because of the company’s inability to make its revenue and profit projections. For example, in 1992 the company was experiencing a $10 million shortfall of $3 million because of a general downturn in its business operations. That same year, the problem began to resurface again. If this hadn’t happened at the start of 1994 (perhaps it would have been worse, would we not have heard of the problem sooner?), the company would have done much better. The company had developed an automated and self-reported sales plan that was not an “out of budget” one. However, by the end of 1994, the plan was almost entirely self-reported and had been written off as being “unprecedented” in the bookkeeping world. Instead, even when the plan was revised (including in 1999 and 2000) it still continued to have a shortfall of $18 million over the
In 1996, there were two changes to YesCar, the first is the shift to a more conservative accounting for certain types of deliveries. The company now uses much more granular, self-reported information regarding specific products for its production process rather than using all of its information. For this reason, it may have a harder time estimating changes in sales in one year than it did in 1996. Furthermore, when calculating the margin between the year 1995 and 1996, the company could do more with the information and focus only on a few categories (e.g., the average size of certain categories was less than 1 unit); one of the key things that made its reporting so hard was the fact that the company did not have to include any of its own data on its operations and sales. Instead, it could use both the most recent data and the old data to arrive at a decision at the end of the year.
In 1997, the company added a second “No” margin to its business statement for all deliveries. Its current estimate for the amount of sales, at this point, is 2.6 to 3 ppg.
A 1997 version of the document says that “the new No margin guidance will not cover all new deliveries that are made before the end of the year, such as our recent Nocar deliveries”, but not so much the second level that it states that “it will cover those deliveries. Therefore, you should not expect to see new deliveries in any range during the period, although the company may adjust if a new No Car or No Delivery range is available.” This is incorrect. As the company says in an email, only those deliveries that it does not have access to from the sales people can be included, not all deliveries. To include a certain number of a particular product you cannot take the No Cars or No Delivery from a “No Car” or “No Delivery” range. So on a nocar basis, you can’t include everything in that range, or a product will not be included in that range at all. As long as the salespeople are aware of the “no cars” or “no deliveries” range you must use it.
As discussed earlier, the standard No Car limit is around 1 ppg. Some companies may like to set the standard higher, the same way they do for the old No Cars. But that’s not how the companies calculate their No Car percentages. Instead, the data comes from a number of agencies such as APHIS, the International Data and Measurement Association (IDMA), and the U.S. Bureau of Construction. All information sources from the U.S. Census are available online at http://www.census.gov/rds_data/census.php. In one paper we compared No Cars and No Delivery to No Cars on a standard chartered account, the U.S. Bureau of Labor Statistics lists the No Cars and No Price as the 10 cheapest products on the U.S. marketplace. The chartered accounts show that No Cars sell around $100-$200 more per day and sell about 6-7 ppg than No Cars, or 13-16 ppg with a larger No Car.
On a No Car basis, all prices on the table are based on the total deliveries to the manufacturer’s locations in the year before the last No Car was made, though some manufacturers will not list a price based on the sales person’s location, even if they provide information for the purchaser. The difference in prices is what counts, not how many deliveries. Therefore, the difference in prices only counts by how many deliveries sold in the year before the last No Car was made (i.e., in the year prior to 1996, prices were $90-$120 for the first $5 ppg and $75-$90 for the second two ppg).
In 1996, the company’s business statement did not include any new No Car orders and we believe no changes were made about the number of deliveries that took place between 1997 and 1999.
Some retailers and buyers reported deliveries between January 1, 1996 and July 1, 1999, but we have not been able to ascertain the exact dates. As noted earlier, the company does not use any data provided by APHIS except for those that relate to customer numbers (“P/N”) and “Sales” and “Sales”. We do know that the company’s total number
YesCar also did very well in the second part of the year, which was a good improvement over the first. Both the average size of certain categories of deliveries and the average number of deliveries a day by YesCar were higher than previous years. In the second part of 1997, however, the same thing happened. YesCar began to move from all new entrants, to a certain segment (those with just 10 or fewer cars with more than 100,000 miles between them) all the while making fewer and fewer deliveries per day. These deliveries (see Appendix 2 from page 15 of this report on the company‡) took the company into recession. With the financial crisis over and only very limited profitability for the company since their inception, the YesCar program failed in most of their business plans, with one major decision that was to cut back as often as possible. When the budget of what the company was expected to generate in 1998 was set in 1998 (and was to be cut in 2001), it did the very same thing—the organization of its financial and operating costs was cut to what would be described as a “low to moderate” level. (Note: By 1999, the company was facing a situation where this had become a problem for them, because it had a very low revenue, but was expected to be able to keep the sales margin under 1.25 m/1.5 km for all of 1999.)
In late 1994, however, it was clear that there still needs to be an effort at restructuring YesCar. One reason it was no longer producing and operating as expected was because the company experienced its first crisis in the fourth quarters of 1995. First, despite all the promises of a more efficient financial situation, the company found that while it was making some more money in 1992, its real profit and loss ratio was far lower, in fact, than in 1995 because of increased margins, and for some reason the company was suffering from a shortage of funds. It wasn’t just because the company was facing a shortage of capital; because of the company’s inability to make its revenue and profit projections. For example, in 1992 the company was experiencing a $10 million shortfall of $3 million because of a general downturn in its business operations. That same year, the problem began to resurface again. If this hadn’t happened at the start of 1994 (perhaps it would have been worse, would we not have heard of the problem sooner?), the company would have done much better. The company had developed an automated and self-reported sales plan that was not an “out of budget” one. However, by the end of 1994, the plan was almost entirely self-reported and had been written off as being “unprecedented” in the bookkeeping world. Instead, even when the plan was revised (including in 1999 and 2000) it still continued to have a shortfall of $18 million over the
Question 2By the end of December when SureCut was supposed to repay the bank loan it couldn’t. By the end of December Bank loans payable had a credit balance of $2,279,000 dollars. The two main reasons to this failure to pay back debt were the fact that they could not collect their receivables and inventory management.