Case Study Sunset Boards

CHAPTER 2 CASH FLOWS AND FINANCIAL  STATEMENTS AT SUNSET BOARDS 1. How would you describe Sunset Boards’ cash flows for 2009? Write a brief discussion. 2. In light of your discussion in the previous question, what do you think about Tad’s expansion plans? SOLUTION Below are the financial statements that you are asked to prepare. 1. The income statement for each year will look like this: Income statement 2008 2009 Sales $247,259 $301,392 Cost of goods sold 126,038 159,143 24,787 32,352 Depreciation 35,581 40,217 EBIT $60,853 $69,680 Interest 7,735 8,866 EBT $53,118 $60,814 Taxes 10,624 12,163 Net income $42,494 $48,651 Dividends $21,247 $24,326 Addition to retained earnings 21,247 24,326 2. The balance sheet for each year will be: Balance sheet as of Dec. 31, 2008 Cash $18,187 Accounts payable $32,143 Accounts receivable 12,887 Notes payable 14,651 Inventory 27,119 Current liabilities $46,794 Current assets $58,193 Long-term debt $79,235 Net fixed assets $156,975 Owners' equity 89,139 Total assets $215,168 Total liab. & equity $215,168

Sunset Boards, Inc. Memo To: Paula Wolfe, Financial Analyst From: [Your Name] cc: Tad Marks, Founder and CEO Date: Re: Sunset Boards’ Financial Statements Purpose: The following contains the financial statements, cash flow calculations and operating cash flows for 2013 and 2014 along with a detailed summary and analysis as you requested. In brief, Sunset Boards’ net cash flows are not substantial enough to warrant any company expansion. The 2014 net cash flow was merely $1,532 and the investing cash flow declined $187,222 from 2013 to 2014. Sunset Boards’ 2013 and 2014 net incomes are healthy values and showing continuing growth, which is a positive indicator of the viability of the company. The dividend payment ratio of 50% of net income is a healthy percentage and is attractive to potential investors, as well as Sunset Boards’ current investors. In summary, Sunset Boards should seek additional outside investment and a reasonable loan from the bank in order to improve the company’s cash flows and build capital for expansion in the future. Income Statements for 2013 and 2014: Sunset Boards, Inc. Income Statements 2013 2014 Net Sales $333,426 $406,427 Cost of Goods Sold ($169,969) ($214,607) Gross Profit $163,457 $191,820 $33,425 $43,626


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