Question

Question - What are the key financial indicators that shows that Jackson Automotive will not be able to pay back the loan at the end of the fiscal year?

Background Jackson had requested the renewal of an existing term loan with the bank in the amount of $5 million that was originally scheduled to be repaid at the end of the month. Jackson was also seeking to borrow an additional $2.4 million to fund the acquisition of a long-needed piece of equipment, which it planned to purchase in late July. Both loans, which totaled $7.4 million, would be repayable on September 30, 2013.

Data -

Exhibit 1 - Forecast Balance Sheets, Fiscal Year 2013 (thousands of dollars)
	2013	2013 Forecast
	May	June	July	August	September
Cash	4,994	2,720	10,796	6,532	(1,372)
Accounts receivablea	3,744	10,881	6,474	7,201	7,394
Inventory	12,163	7,482	6,936	6,524	5,963
Current assets	20,901	21,082	24,206	20,257	11,985
Gross PP&E	45,500	45,500	45,500	47,900	47,900
Accumulated depreciationb	31,448	31,568	31,688	31,818	31,948
Net PP&E	14,052	13,932	13,812	16,082	15,952
Prepaid expenses	54	54	54	54	54
Total assets	35,007	35,068	38,072	36,393	27,991
Accounts payablec	5,950	5,950	5,950	5,950	5,950
Notes payable, bank	5,000	5,000	7,400	7,400	-
Accrued taxesd	273	548	799	1,034	906
Other accrued expenses	1,142	1,142	1,142	1,142	1,142
Customer advance payments	2,700	900	-	-	-
Current liabilities	15,065	13,540	15,291	15,526	7,998
Shareholders equity	19,923	21,186	21,672	22,128	21,408
Total liabilities and equity	34,988	34,726	36,963	37,654	29,405
aSelling term of net 30 days
bDepreciation of $120,000 per month through July 2013, $130,000 per month as of August 2013
cPurchase terms of net 30 days
dTaxes payable for 2013 were assumed to be $1,500,000 and would be paid on December 15, 2012, March 15, 2013, June 15, 2013 and September 15, 2013 in equal increments.
Cash Calculation		(342)	(1,108)	1,261	1,414

Exhibit 2 - Forecast Income Statements, Fiscal Year 2013 (thousands of dollars)
	FY 2013 Eight Months Ended May	Forecast 2013 June	Forecast 2013 July	Forecast 2013 August	Forecast 2013 September	Forecast FY 2013 Twelve Months Ended June
Net sales	44,014	12,681	7,374	7,201	7,394	78,664
COGS	34,297	9,881	5,746	5,611	5,762	61,297
Gross Profit	9,717	2,800	1,628	1,590	1,632	17,367
Operating expenses	5,608	750	750	750	750	8,608
Depreciation and amortization	960	120	120	130	130	1,460
Interest expensea	200	25	25	37	37	324
Interest incomeb	60	8	5	18	11	102
Profit (loss) before tax	3,009	1,913	737	691	726	7,076
Income taxesc	1,023	650	251	235	247	2,406
Net income (loss)	1,986	1,263	487	456	479	4,671
Dividends	400				1,200
a6% annualized interest rate charged on outstanding bank loans.
b2% annualized rate of return on beginning monthly cash balances.
cThe federal tax rate on all earnings was 34%.
FYI
% COGS to Net sales	77.9%	77.9%	77.9%	77.9%	77.9%	77.9%