Just A Reminder That Case I Is Due At The End Of This Week

Just A Reminder That Case I Is Due At The End Of This Week You Have B

Prepare a memo in Word that answers the questions in the Chapter 2 Case, "Cash Flows and Financial Statements at Sunset Boards, Inc.", on page 51 of the textbook. Use Excel for financial calculations. You need to prepare and present the following: an income statement for 2013 and 2014; a balance sheet for 2013 and 2014; operating cash flow for each year; cash flow from assets for 2014; cash flow to creditors for 2014; cash flow to stockholders for 2014. Additionally, analyze Sunset Boards’ cash flows for 2014 and discuss the implications for Tad’s expansion plans.

Paper For Above instruction

Introduction

Sunset Boards, Inc., a small surfboard manufacturer located in Malibu, has experienced a significant change in its financial circumstances due to increasing sales and expansion ambitions. Historically, the company’s financial records have been informal, reflecting its origin as a small, privately funded venture. However, as sales rise and expansion plans develop, a detailed financial analysis becomes essential. This analysis includes constructing comprehensive financial statements for 2013 and 2014, calculating key cash flow metrics, and interpreting these figures to evaluate the company’s financial health and sustainability of growth.

Financial Data and Assumptions

The provided data from 2013 and 2014 include sales, costs, expenses, assets, liabilities, and equity. Key figures include sales of $333,427 for 2014, cost of goods sold of $169,607, depreciation of $47,230, and interest expense of $10,954. Sunset Boards’ tax rate is 20%, and it distributes 50% of net income as dividends. Starting with these figures, we perform calculations using Excel to develop income statements, balance sheets, and cash flow statements for both years.

Income Statements for 2013 and 2014

Constructing income statements begins with sales, subtracting cost of goods sold to determine gross profit. Deducting operating expenses and depreciation yields EBIT (Earnings Before Interest and Taxes). Including interest expense results in EBT (Earnings Before Tax), which, after applying the 20% tax rate, provides net income. Dividing net income by the number of shares (assuming a single owner here) and considering dividends gives insight into retained earnings and cash flows.

Balance Sheets for 2013 and 2014

The balance sheet encapsulates assets, liabilities, and equity. Using balance sheet components like net fixed assets, inventory, accounts receivable, accounts payable, notes payable, and long-term debt, we reconstruct the financial positions for each year. Changes in these accounts inform cash flow analysis, such as the investment in fixed assets or changes in working capital.

Operating Cash Flows for 2013 and 2014

Calculating operating cash flow involves adjusting net income for non-cash expenses like depreciation and changes in working capital. This metric reveals the cash generated from core business activities, critical for assessing whether the company is self-sustaining or reliant on external financing.

Cash Flow from Assets for 2014

This measures the cash generated by the company’s operations and investments, subtracting capital expenditures. It indicates whether the company has sufficient cash flow to support growth initiatives like new stores or supplying other sellers.

Cash Flows to Creditors and Stockholders for 2014

Assessing cash flows to creditors involves considering interest payments and repayment of debt. Cash flows to stockholders include dividends paid, reflecting profit distribution. These indicate how much cash is returned to financiers versus retained for reinvestment.

Analysis of Sunset Boards’ Cash Flows in 2014

The company’s cash flow statement reveals its ability to generate cash through operations, reinvest in the business, and satisfy its obligations. Positive operating cash flow indicates healthy core operations, whereas negative cash flow might signal liquidity or profitability concerns. The interplay between operating cash flows, investing activities, and financing activities gives a comprehensive picture of financial sustainability.

Implications for Tad’s Expansion Plans

Given the cash flow analysis, Tad’s expansion plans appear ambitious but require careful financial planning. If Sunset Boards demonstrates strong operating cash flows and manageable debt levels, expansion could be feasible. Conversely, if cash flows are weak or declining, additional external funding might strain the company’s financial health, risking over-leverage or liquidity issues.

Conclusion

This detailed financial analysis provides a comprehensive view of Sunset Boards’ fiscal condition. It emphasizes the importance of organized financial data, strategic cash flow management, and cautious expansion, especially for a growing company like Sunset Boards poised to enter new markets. Such insights are vital for Tad to make informed, sustainable growth decisions.

References

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