Mycon Evaluation

Mycon Sultant Company is a concrete business that is dedicated to serve the general public and construction companies. Mycon consists of 3 plants of which 1 plant was designed to be back up for Mycon Headquarters (plant 1). Mycon has 62 employees and a fleet of trucks. Mycon has brought in a professional group of analyst to evaluate any potential problems this company is facing and give the appropriate solutions. Among this group of professional analyst I am included. In 1998, Mycon suffered with direct competition from a very strong competitor. This competitor was very strong that it made Mycon faces many difficult losses and problems which will be explained later. By the end of 1999, the owners of Mycon where faced with the difficult question of whether to sell the company.

After having evaluated the financial statements for years 1997 through 1999, I concentrated in evaluating the aged receivables whiled my fellow colleagues concentrated in the following documentation: aged payables, assets, liabilities equity, income, and cost of goods sold, expenses, debt schedule, note amortization, depreciation schedule, historic cash flows and pro-forma cash flows.

After evaluating the aged receivables I found that Mycon does not collect from customers in an adequate manner. Mycon continues to provide service to customers in the 61-90 day range. The collection department is ineffective in managing accounts that are over the 60 day period. Overall the aged receivables are handled in an ineffective manner. There was also a problem that Mycon continue to allow the payables to be above the receivables this also meant that there was not enough money coming in to the company in an adequate manner. The following graphs will show the aged receivables for all three years and how they fluctuated and how they compare to revenue and payables. There will also be graphs that show how Mycon does not control the collection department in any stage while having the 61 days and above being the worse.

In the graph above we can see how Mycon began loosing control of the accounts receivables. This became worse ending with the day range of over 90 days as can be viewed in the following graphs.

While analyzing the cash flows I noticed in year 1997 Mycon was suffering from cash flow control. Mycons bank account was constantly overdrawn. This is a major problem because Mycons initial investment was of $100 thousand dollars and by the end of 1997 their bank account was overdrawn almost $80 thousand dollars which extended for the following two year period. The obvious situation that caused this problem was that there was an increase in accounts receivables leading to a longer turn around period, the cash was being used and this caused the increase which lead Mycon to suffering.

In the accounts payable section they are paying them as soon as they collect and sometimes Mycon pays more than the amount they collect. In 1997, six months out of the year the accounts payable was greater than the accounts receivables. This reoccurred in two months of 1998 and in nine months of 1999. This can be viewed in the following graph.

When evaluating the relationship between the net income and the retained earnings I found that the net income decreased and several times the decrease was big that it went into a negative, this meant that Mycon lost money. As observed in the following graph in 1999 net income dropped into a negative and maintained in a negative stage for a couple of months. When a company has negative income it means that the company is suffering and going through a difficult stage. The company is either lending too much or not enough business. Mycon has great potential but as seen they do not know how to manage the business or even worse they do not know how to deal with competition. This is a reoccurring problem that is seen and sticks out almost in every document evaluated. The item that never went into a negative was the retained earnings the only thing that happened to retained earnings was that they suffered a continuous decrease as time went by.

In evaluating the depreciation documents I noticed that what they reported is significantly different than what is on the depreciation schedule. This difference causes the depreciation to be underestimated. Mycon is using the straight line depreciation approach which results in stating higher profits and less depreciation in comparison to the accelerated depreciation. It seems as though Mycon wants to report less than what is required to report. In the following graph we can see the differences between the actual amounts of depreciation and what was actually reported.

Mycon also presents problems in the expenses area. Mycon has several expense accounts that are high. These accounts should not even be there, some of these accounts include bank charges and collections, cost of fuel, cost of oil and grease. These accounts are variable and not fixed expenses. Other accounts that need to be adjusted are the executive salaries, and the phone expenses for plant number one even though this is headquarters it is very high for a concrete company. These variable expense accounts are from the income statement.

After evaluating Mycon Sultant Company, I have come up with the following recommendations. Based