Question: Despite being a publicly traded company only
Despite being a publicly traded company only since 1987, Northland Cranberries of Wisconsin Rapids, Wisconsin, is one of the world’s largest cranberry growers. During its short life as a publicly traded corporation, it has engaged in an aggressive growth strategy. As a consequence, the company has taken on significant amounts of both short-term and long-term debt. The following information is taken from recent annual reports of the company
Instructions
(a) Evaluate the company’s liquidity by calculating and analyzing working capital and the current ratio.
(b) The discussion of the company’s liquidity, shown on page 770, was provided by the company in the Management Discussion and Analysis section of the company’s annual report. Comment on whether you agree with management’s statements, and what might be done to remedy the situation.
The lower comparative current ratio in the current year was due to $3 million of short-term borrowing then outstanding which was incurred to fund the Yellow River Marsh acquisitions last year. As a result of the extreme seasonality of its business, the company does not believe that its current ratio or its underlying stated working capital at the current, fiscal year-end is a meaningful indication of the Company’s liquidity. As of March 31 of each fiscal year, the Company has historically carried no significant amounts of inventories and by such date all of the Company’s accounts receivable from its crop sold for processing under the supply agreements have been paid in cash, with the resulting cash received from such payments used to reduce indebtedness. The Company utilizes its revolving bank credit facility, together with cash generated from operations, to fund its working capital requirements throughout its growing season.
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Northland Cranberries Current Prior Year Year $ 6,745,759 $ 5,598,054 83,074,339 4,484,687 Current assets Total assets 107,744,751 10,168,685 Current liabilities Total liabilities 73,118,204 34,626,547 49,948,787 33,125,552 Shareholders' equity Net sales 21,783,966 18,051,355 Cost of goods sold Interest expense 13,057,275 3,654,006 8,751,220 2,393,792 1,051,000 1,581,707 Income tax expense 1,917,000 Net income 2,942,954
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