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Case study · CASE:financial-statement-analysis/aster-birchline-three-year-operating-review

Explain Aster and Birchline's diverging operating cycles

Prepare a controlled three year statement and operating efficiency review for two fictional wholesalers without turning historical ratios into unsupported causes or policies.

Updated Aug 7, 2026 Review due Nov 7, 2026
On this page
  1. Assignment context
  2. Evidence packet
  3. Required calculation appendix
  4. Accounting-control note
  5. Finance-committee briefing
  6. Constraints
Decision brief

Your assignment

Role: Analyst preparing an accounting-control note and finance-committee briefing for Aster Supply LLC and Birchline Supply LLC

Deliverable: A two-page accounting-control note, a three-page finance-committee briefing, and a calculation appendix containing source controls, statement ties, changes, common-size views, rollforwards, turnover, days, cycle reconciliation, bounded observations, and prioritized evidence requests.

Evidence basis: fictional

Visible standard

Evaluation criteria

  • source statement and rollforward control (30%): Controls entity, period, units, definitions, basis, version, equations, continuity, zero bases, averages, and all three operating rollforwards without silent proxies.
  • quantitative accuracy and reconciliation (30%): Correctly computes horizontal, trend, common-size, turnover, days, operating-cycle, and cash-conversion outputs at full precision and reconciles every identity.
  • evidence bound interpretation (25%): Separates mathematical attribution from cause, identifies competing explanations and stop conditions, and requests specific accounting and operational evidence.
  • dual audience communication (15%): Gives accounting readers reproducible controls and finance readers a concise comparison and investigation plan without ranking, forecasting, valuing, or recommending.

Assignment context

Aster's dashboard flags sales growth as favorable but ignores declining net- income share and a lengthening cash conversion cycle. Birchline's dashboard highlights its shorter cycle and recommends copying its credit, Inventory, and supplier policies. Neither dashboard shows source controls or the evidence needed to explain the ratios.

Replace both dashboards with a reproducible analysis.

Evidence packet

Use the Aster–Birchline three-year facts. The packet stipulates two comparable nonpublic wholesalers, three consecutive 365-day years, whole USD, stable line definitions, one reporting basis, exact credit-sales and credit-purchase fields, and a simple-average convention.

The packet excludes customer terms and aging, write-offs, product demand and aging, stockouts, supplier terms, overdue invoices, discounts, subsequent cash evidence, acquisitions, seasonality, forecasts, market data, and valuation.

Required calculation appendix

  1. Document entity, period, currency, units, line definitions, accounting basis, statement version, day basis, and average-balance convention.
  2. Rebuild every opening and ending accounting equation and tie each period's opening components to the preceding ending components.
  3. Compute Year 2 and Year 3 dollar and percentage changes and Year 1 base-100 indexes for sales, cost of goods sold, net income, receivables, Inventory, payables, total assets, and equity. Apply the zero-base policy.
  4. Prepare three-year common-size income and ending balance-sheet views with original amounts retained.
  5. Reconcile customer collections, the Inventory cost flow, and supplier payments for each company and period.
  6. Compute each average operating balance, turnover, DSO, DIO, DPO, operating cycle, and cash conversion cycle using full precision.

Accounting-control note

Explain why net credit sales, cost of goods sold, merchandise purchases, credit purchases, collections, and supplier payments are separate fields. Identify the controls that would fail if a public filing did not disclose credit sales or purchases. State which classifications and omitted events require review before using the ratios in real work.

Finance-committee briefing

  • Describe the supported three-year sales, composition, and cycle patterns.
  • Attribute cycle changes to the mathematical components without assigning operational causes.
  • Compare Aster and Birchline without selecting a winner.
  • Give at least two plausible explanations for each material component change.
  • Prioritize at least eight specific evidence requests across customer, Inventory, supplier, cash, and denominator-quality questions.
  • Explain why the historical cycle is not a cash forecast or policy target.

Constraints

Do not invent pricing, demand, customer quality, collection failure, obsolescence, stockouts, supplier distress, bargaining power, financing cost, management intent, fraud, future cash, valuation, or a recommendation. Preserve full precision in the appendix and label displayed rounding. A shorter cycle or higher turnover is not a scoring rule.