Cariboo Industrial

1. Executive Summary

Cariboo Industrial (CI) Ltd was retail chain specializing in the sale of industrial equipment and supplies to commercial contractors in British Columbia and Alberta. It was successful 2000 – 2001. It had a good capital structure with moderate leverage. Revenue and net income were both high. Return on equity (ROE) as well as return on assets (ROA) was high too.

Jack Venables was hired to manage CI in early 2001 when the owner Martha McMaster suffered a stroke. Since then, things went downhill for CI. Leverage began to increase and so did accounts payable. Large parcels of land were purchased above their market value.

These problems intensified in year 2003. As compared to 2001, net income in 2003 fell by more than 80%. Selling and administration expenses rose significantly. Accounts receivables were grossly inflated by fictitious sales made. However, only less than half of the accounts receivables were expected to be collected. Accounts payable was "over-stretched" and many suppliers cut CI off further credit.

Short term liquidity was in jeopardy. Profitability ratio painted a pessimistic picture too. ROE and ROA both fell since 2001. Solvency ratios revealed that CI was undertaking too much leverage, increasing the risk of the company substantially. The outlook of the company was gloomy.

In addition, the main source of cash inflow from was debt financing. Furthermore, there is a huge shortage of cash inflow and the recommended cash infusion of $3.9 million was insufficient to maintain company's operations. These problems were addressed with greater details in the subsequent part of the report

Immediate steps have to be taken to prevent the company from going into bankurcptcy. Firstly, CI should try to inject cash into the firm. Thereafter, CI should concentrate on getting their customers back and then improving their credit terms with their

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