Friendly Card, Inc - Financial Analysis

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Friendly Cards, Inc. Financially on the Capital Edge MBA 651-D4B1: Financial Management May 1, 2011 Table of Figures Figure 1. Debt monitor ratios. 4 Figure 2. Share distribution and EPS values. 5 Figure 3. NPV for purchasing envelope machine. 7 Figure 4. Valuation after common stock issuance. 8 Friendly Cards, Inc. Financially on the Capital Edge Friendly Cards Inc, (FCI) is an independent greeting card company that has expanded rapidly through internal growth and acquisitions (Friendly Cards, Inc. 1993). While adding to shareholders wealth this rapid growth has also increased its outstanding debt capital financing to a level that has its bankers alarmed. Recently, Ms. Beaumont, the President of FIC, has been informed that additional borrowing, after 1988, would have the following restrictions imposed. 1) Bank loans outstanding at any time could not exceed 85% of Friendly’s accounts receivable. a. Based on sales projections for 1989 FCI’s outstanding loan to accounts receivable ratio exceeds the 85% threshold established by the banks by $823,000 (Tab 1 – FCI Financials, Exhibit 2). 2) Friendly’s total liabilities could not exceed three times the book value of the company’s net worth. a. Based on sales projections for 1989 FCI’s liabilities to equity ratio exceeds this threshold by $2,626,000 (Tab1 – FCI Financials, Exhibit 2). An additional restriction was self-imposed by Ms. Beaumont for her planning scenarios that hold’s Friendly’s interest bearing debt to equity ratio to a maximum of 2:1, which is $2 dollars of debt for every $1 dollar of equity. Again, based on sales projects for 1989/1990 FCI’s this ratio exceeds the established threshold (Tab 1 - FCI financials, Exhibit 3). Financial Decisions Ms. Beaumont doesn’t perceive curtailing

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