2. What magnitude of market decline relative to estimated 2008 sales would force VSI management to take actions likely to impact the company's future growth prospects in a significantly negative way? (Note: Assume that borrowing more money would be quite difficult and/or prohibitively expensive.)

In 2008, VisuSon has strong growth and it was projected that sales would be continued to establish pattern of double-digit growth. However, the overall economy was in decline, with the Dow Jones Industrial Average decreased by 40% relative to 2007. Besides the competitive market, there was also a collapse in the Auction rate market. Moreover, both Linda and Jon agreed that a wider credit crisis would negatively impact 2009 sales. From the VSI’s data, we could know that if there was 10% growth in revenue for 2009, it would result in revenue of $65743, which is $ 6948 above break-even revenue. In 2008, the revenue is $ 59766, which is $ 971 more than 2009 break-even revenue, $58795. Therefore, if VSI’s 2009 revenues fall more than 2% below 2008’s, the organization will have to begin cutting costs to remain within budget.

c. What debt ratio has historically been most important for VSI? What constraint will maintaining or improving this debt ratio places on VSI’s operations in 2009?

Management of cash and working capital was a critical issue for this small, rapidly growing company. VSI’s long operating cycle and high growth rate required VSI to finance this growing investment in working capital through short-term borrowing against the value of its accounts receivable and inventories. From 2005-2008, VSI ensured the debt ratio between accounts receivable plus inventories and accounts payable plus notes payable does not exceed 1:1. From 2005 to 2008, VSI’s debt to asset ratio increased from 39% to 44%, and the debt ratio was relative constant after 2006. Jon felt that