O.M Scott & Sons Case Essay

1563 Words Apr 11th, 2016 7 Pages
A Case Study on
O.M Scott & Sons Co.

Table of Contents
Objective……………………………………………………….…………1
Company Background……………………………………………………1
Ratio Analysis…………………………………………………………….1
Pro Forma Analysis……………………………………………………….3
Sensitivity Analysis……………………………………………………….3
Recommendations for Management………………………………………4
Summary of Case Study…………………………………………………..4
Appendix………………………………………………………………….5

Objective
This paper will seek to analyze the financial statements of the O.M Scott & Sons Company during the years 1957-1961, in order to provide readers with a thorough understanding of the various factors that may influence the future success of this business. Additionally, recommendations based on an analysis of their financial
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Likewise, a decreasing trend for Return on Assets suggests that O.M Scott & Sons is unable to efficiently use its assets to generate profits. This may be attributed to an increase in total assets during the past three years. Regarding profit margin, an upward trend is apparent between the years 1957-1960. However, a drop to .0364 in 1961 demonstrates the negative impact their Trust Receipt Plan had on their profit margin. Concerning the turnover control ratios, the reduced asset turnover rate beginning in 1959 is attributable to high total assets maintained by the company, which decreased their ability to generate sales on each dollar of asset by 31%. A decrease in inventory turnover takes place between 1957-1959 going from 6.6235 to 3.4490. Despite this decrease, a sharp increase occurs in the following years to a peak of 7.7707. This increase shows the difficulty O.M Scott & Sons has in turning over inventory into sales. Most alarming is the dramatic increase in collections period in 1960. An increase from 69 days to almost 150 days takes place following the implementation of their Trust Receipt Plan. Prior to 1960, these numbers were relatively stable indicating that the Trust Receipt Plan is one of the primary forces driving these trends. Additionally, accounts receivable turnover and operating cycle both suffered due to the Trust Receipt Plan. The operating cycle ratios suggest that management isn’t performing at an efficient level. Lastly, the cash

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