Alliance Concrete Case Analysis

Executive Summary:
This report provides an analysis and evaluation of the current and forecasted profitability, liquidity and financial stability of Alliance Concrete. Methods of analysis include forecasting the income statement and balance sheet to calculate financial ratios and profitability ratios. The key drivers for the income statement was management’s assumption about the sales environment surrounding Alliance Concrete. All calculations can be found on the attached document. Results of data analyzed show that Alliance Concrete is experiencing sales decline, profitability decline, but is relatively financially stable for the most part. The report finds the prospects of the company in its current …show more content…
The next big assumption we made was owners’ equity where we assumed $3,000,000 will be paid in dividends from the projected net income of $9,904,000, leaving $6,904,000 to add back into owners’ equity. And finally, we plugged in long-term debt until we got total assets to equal total liabilities and owners’ equity.

Financial Analysis:
At first look, 12.9% sales growth looks fantastic. In fact, the predicted sales growth is lower than the 2005 revenue growth and comes in at 5 basis points below the past 3 years growth rate. The industry overall is experiencing headwinds on costs due to the fact that cement costs worldwide are increasing. To quantify this, Alliance is forecasted to experience gross margin contraction (proxy for COGS and sales) by nearly 218 basis points. When you analyze a more holistic view of the income statement, one can infer that that reduction in gross margins will also lead to a decrease in net margin. Alliance is projected to have net margin decrease by 173 basis points to a company’s 4 year historic low of 4.72%. The overall margin analysis on Alliance is generally worrisome because they are experiencing costs increase by 10% but they can only increase prices by 7%, leaving them a 3% increase in expenses that cannot be covered and as a result, will deteriorate their bottom line.

Situation Analysis:
Alliance should approach the bank by