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Zila, Inc. is an international provider of pharmaceutical, biotechnology, and nutraceutical products for dental/medical professionals and consumers. One of Zilas recent major projects is a method to detect oral cancer for which Zila is awaiting FDA approval on. Captions of their statement of operations, balance sheet and cash flow are presented below.

Balance Sheet Data

	2001	2000
Cash and cash equivalents	$1,651,266	$5,558,487
Accounts receivable, net of allowance of $312,061 (2001) and $345,857 (2000)	10,412,372	9,893,587
Inventories	17,751,148	13,204,137
Total current assets	32,069,550	31,380,071
Property & equipment (net)	9,843,103	9,442,278
Total assets	76,557,129	77,711,459
Total current liabilities	15,683,253	11,050,668
Short-term borrowings	6,160,947	51,770
Total debt	19,836,524	15,599,621

Selected Income Statement Data

	2001	2000	1999
Net sales	$73,724,923	$77,580,908	$71,294,751
Cost of products sold	41,425,083	40,004,391	34,355,344
Gross Profit	32,299,840	37,576,517	36,939,407
Selling, general, and admin. expense	31,864,041	32,449,161	31,853,421
Operating profit (loss)	(6,125,804)	20,656	(2,463,810)
Interest expense	596,870	2,112,671	392,805
Net income (loss)	(6,313,823)	2,932,027	(1,966,982)

Selected Cash Flow Data

	2001	2000	1999
Net cash provided from operating activities	($8,683,507)	$2,329,653	($791,581)

You assemble the following ratios:

	2000	2001	Industry
Current ratio	2.84%	2.04%	1.5%
Quick ratio	1.64%	0.91%	0.9%
Average collection period	46.55 days	51.55 days	50 days
Days inventory held	120.47 days	156.41 days	67 days
Fixed asset turnover	8.22X	7.49X	37.2X
Total asset turnover	1.00X	0.96X	2.6X
Debt to total assets	20%	26%	65.3%
Times interest earned	0.01X	-10.26X	3.4X
Gross profit margin	48.44%	43.81%	30.6%
Operating profit margin	0.03%	-8.31%	5.2%

Industry ratios from Robert Morris Associates, Annual Statement Studies, 2001; SIC #5047

1. Comment on the firms liquidity position in terms of the current and quick ratio. Which of the two ratios is deteriorating more? What does this imply?
2. Comment on the average collection period.
3. The management of which current asset(s) would be of most concern to the financial analyst? Explain.
4. Zilas total debt has risen since 2000. Is their capital structure more or less risky than the industry? Explain.
5. What concerns would creditors have about their stake in Zila?
6. Discuss the companys profitability.
7. Given the overall circumstances surrounding Zila, list two reasons for and two reasons against making an investment in Zila.

Reasons for:

Reasons against:

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