Custom Snowboards is considering borrowing a 5 year loan (long term loan) from a bank. It has been deemed necessary that the company presents a detailed analysis of its financial statements to reveal their credit worthiness so as to qualify for the loan. This report logically presents the analysis to this effect. The financial statements have several line items that could either support or discredit the company’s chances of being considered for the loan. These items/points are categorized into strengths (supportive) and weaknesses (non-supportive) Strengths in the financial statements Cash and cash equivalents (C &CE) C & CE’s have been increasing with time. In year 12, they amounted to 121,000 and the figure increased substantially to read …show more content…
The profitability of Custom Snowboard Company is on the decrease. Even though this may not have a direct effect on the cash flow of the company, it poses questions on the long term sustainability of company operations. Decrease in short term investments Reducing short term investments will have a negative effect on the cash flow of the company. This is because, the funds that used to be paid to and received from such investments will no longer form part of the cash flow streams. Such investments are very important in boosting the working capital of the business. Increase in furniture and fittings Furniture and fittings are part of fixed assets and their increase has a negative impact on the liquidity of the company. They are seen to have increased from $300,000 in the first year to $500,000 in the last year. This means that money is now tied up where it would be hard to get it back and it works against the credit worthiness of Custom Snowboards Company. A2: Risks – Mitigation of financial risks The company is faced with risks which need to be mitigated in order to boost the chances of the company being accorded higher loans. Below is a breakdown of how the Custom Snowboard Company needs to manage these …show more content…
Such funds are difficult to recoup and so the business should make such purchases only when it is necessary. Any other form of capital investment decision should be made in consultation with the right personnel who can deduce the financial implication of such moves. More equity and less leverage: A highly leveraged company carries with it high risks. Custom Snowboard Company should strive to make sure that its capital structure is more constituted of equity than it is of debt (Poznanski, Sadownik, & Gannitsos, 2013). The debt ratio should be as low as possible to make sure that the company is optimally leveraged. Banks find it hard to offer good loans to companies which are highly leveraged due to high likelihood of default. Only enough inventories should be kept: Inventory is known to tie up funds especially when it is not fast moving. The business should establish optimal inventory levels for various products depending on how fast they move. The principle of “Just In Time” would come in handy in this case. JIT is a stock management technique in manufacturing that seeks to eliminate all possible wastage in terms of storage, time and labor (Radisic, 2007). Inventory lowers the acid test ratio which is a measure of liquidity of a
When being placed in the role of a manager, it is important to understand the finances of the organization and how to read and understand the recording of finances. It is also important to understand how all the different parts of the records fit together to give us the knowledge of where the business is financially. Knowing also the different responsibility centers related to financial recording and how they function is important as a manager. Once a manager understands what and where items belong on a balance sheet, they will better understand the state that the business is in. “It provides you with a picture of the financial health of your practice or organization on a certain date.”
The consolidated 2nd quarter of 2015 highlights: Consolidated Revenue Increased by 11.3%, Operating Cash Flow Increased 8.0%, and Operating Income Increased 7.9% Free Cash Flow Increased 30.0% Earning per Share Increased 10.5% to $0.84; Excluding adjustments, EPS Increased 12.0% Quarterly Dividends and Quarterly Share Repurchases Increased $878 Million, or 65.8%, to $2.2 Billion ($ in Millions) 2014 2015 Growth Revenue $34,252 $36,596 6.8% Operating Cash Flow $11,342 $12,222 7.8% Earnings Per Share $1.47 $1.65 12.2% Free Cash Flow
For example, Verizon has increasing number of common stock. It was $424,000. Also, retained earning increased about 27%. Cash flow Statement Net cash provided by operating activities during 2014 decreased by $8.2 billion because increase in adjustment to net income like increase in income tax payments and interest payments.
This was done by decreasing their cash and the amount of property and equipment the company had and complemented this with increasing accrued interest (America's CAR-Mart, 2017). Between liabilities and equity, the company matched the increase of $18,000 by raising the notes payable and simply by earning more (See Appendix Page 8). Revenues and expenses have increased yearly since 2015, however net income was considerably down in 2016 however rebounded about 50% in 2017 (See Appendix Page 9). There has been a decrease in net cash from operating activities since 2016 and a considerable decrease in investing activities as well. Financing activities compose the bulk of spending yearly.
The suggested recommendation of action of the plan improves the company’s success by keeping the cost down and managing operations well because the main focus of the ALT was the reduction of cost and control of payroll, bad debts, interest, and inventory management(Roberts & Hendry, 1991). This article by Atlantic Lumber Traders is very crucial in a business case study because it elaborated how poor the management choice has been made, lack of responsibility can reduce the financial performance of the company which will affect the viability(Roberts & Hendry, 1991), it also provides more leads and information to the readers as the basic ways of learning through case studies((47) 5 Key Benefits of Case Studies in Business | LinkedIn, n.d.), also it could help in understanding the benefits of reducing the cost in the business and risk mitigation(9 Key Benefits of Business Financial Planning,
Saika Sports Cash Flow Saika Sports is a sports center near my home, that offers swimming lessons, a weight gym, aerobic lessons and dance classes. The demand for swimming lessons, the company’s most valuable operation, is low in the winter time. So, Saika Sports management prepares for the winter season by preparing a budget to be followed throughout the year. In order to pay the financial obligations of the slow period, cash budgets are regularly assessed and updated during the year, by the accountant.
An analysis of Sunset Boads, Inc. 's cash flows for 2013 and 2014 shows that the company generated substantial amount of cash flows from operations and appeared like the business is going well. However, the overall cash flow in 2014 would have been negative without the new equity invested. The company might had to either obtain additional funds or reduce the dividend payout ratio.
By creating a cash budget, a company can predict when there could be a cash deficit and the magnitude of this deficit. In return, the budget shows that the difference between budget and actual value may need to be compensated by borrowing. Short-term financing may require purchasing inventory, promoting products or paying monthly fees. By forecasting cash demand, companies can assess future business opportunities based on the likely financing needs and cost components of the
Introduction The main objective of this particular case study is to assist Victor Dubinski, the current CEO of Blaine Kitchenware, decide whether or not repurchasing shares and changing the firm’s capital structure in favor of more debt could actually be benefit the company and its shareholders. Blaine Kitchenware is a small cap, public company who focuses on selling various different residential kitchen appliances. Up until this point, the company has only used cash and equity financing to acquire independent kitchen appliance manufacturers, and expand into foreign markets abroad. Given their excess cash and lack of debt, Blaine Kitchenware is considered to be “over-liquid and under-leveraged” (Luehrman & Heilprin, 2009).
Evaluate 3 different finance sources appropriate for General Sportswear General sportswear can use bank loans as it is borrowed and a medium to long term source of finance. Depending on the agreement the Business will have a fixed interest charge and a fixed or flexible date to pay it back. With the Bank loan money can be received quickly and accommodated to meet the borrower’s needs, however if payments are late the lender can take property away or give out fines. Sales of assets can also be used as a source of finance with General Sportswear as they have 3 outlets which where assets such as machinery can be sold if they are not being used.
The risk management plan provides management the capability of identifying risks that could be damaging to our company’s growth and continued existence. When developing the risk management plan for our company, we are taking the necessary steps to reduce any negative actions brought against our organization. “Risk management is the concern over potential legal liability” (Epstein, 2013, p.114). Risk management is part of the company’s system which controls the external factors and the internal factors associated with risk. Developing a risk plan can mandate the management to be more proactive on risk management.
It shows that in 2014, the ROCE was 9% against the capital employed of 10.5 million (GBP). The ROCE increased to 9.5% against the capital employed of 11 million in 2016. It shows that the business is making profit against the capital employed. The net margin also increased from 35% in 2014 to 37% in 2016 it means that the sale and finance department are doing well compared to the capital employed and the gross profit margin. The problem starts in the total revenue which declined from 3.2 million in 2014 to 1.6 million in 2016.
II. Problems of the Case Study 1. Considering company’s budget is very limited, installation of the new technology might affect the financial position in the next year operation. 2.
The biggest financial worry is the presence of its challengers in the business. Also, the company has to research the goods, business approaches, and other characteristics of all possible
To begin with, the company must channelize its investment in those projects that will assist the growth in the revenue figures and net income. It is also important for the company not take any additional debt and accept projects within their capital budget as the banks have already signaled red warning for unsustainable debt-equity position of the company. Analyzing the past performance of the company, we found that