cquisition of assets. This is favorable to long-term creditors.The interest coverage ratio which is calculated by dividing operating income before income and taxes by the interest expense was 5.8 which is strong. 1996 however showed only 1.6 coverage. Cash Flow AnalysisThe company uses the indirect method of preparing its cash flow statement beginning with net earnings and adjusting for expenses, revenues, and non-operating gains and losses not resulting in cash receipts and expenditures. The cash flow statement shows the primary source of cash flows to be operations in both 1997 and 1996. Within operating activities, cash received from customers, $9,918.1 in 1997 (sales adjusted for change in accounts receivable) provided the greatest source of cash. Cash received from customers was the greatest source of cash in 1996 as well. This is preferred by investors since the source of cash is from outside the company and does not rely on incurring debt or contributions from stockholders. The highest uses of cash for year ended February 1, 1997Inventory:Cost of sales:Change in inventory: Total:19976,892.5 194.67,087.119966,592.3 193.16,785.4Other Expenses:Selling, Advertising, General and Admin:Accouts payable, Accrued Expenses & Other LiabilitiesPrepaid Expenses & Other Operating Liabilities Total: 2,019.7( 261.4) 10.1 1,768.41,894.8 150.5 15.72,061.0Summary and Long Term TrendsThis financial analysis has focused on short-term liquidity, profitability, capital structure, leverage and long-term solvency. The appendix contains additional ratios and analysis which review each part of the financial statement in detail. In looking at the total picture, this company does not appear to be in trouble but neither is it a super star. Even though inventory comprises a high percentage of their current assets, they are successfully beating the industry averages for inventory turns. In addition their receivables consistently exceed i...
