CASE
Cash Flows and Financial Statements at Sunset Boards, Inc.
Sunset Boards is a small company that manufactures and sells surfboards in Malibu. Tad Marks, the founder of the company, is in charge of the design and sale of the surfboards, but his background is in surfing, not business. As a result, the company’s financial records are not well maintained. The initial investment in Sunset Boards was provided by Tad and his friends and family. Because the initial investment was relatively small, and the company has made surfboards only for its own store, the investors haven’t required detailed financial statements from Tad. But thanks to word of mouth among professional surfers, sales have picked up recently, and Tad is considering a major expansion. His plans include opening another surfboard store in Hawaii, as well as supplying his “sticks” (surfer lingo for boards) to other sellers. Tad’s expansion plans require a significant investment, which he plans to finance with a combination of additional funds from outsiders plus some money borrowed from banks. Naturally, the new investors and creditors require more organized and detailed financial statements than Tad has previously prepared. At the urging of his investors, Tad has hired financial analyst Jameson Reid to evaluate the performance of the company over the past year. After rooting through old bank statements, sales receipts, tax returns, and other records, Jameson has assembled the following information:
2015 2016
Cost of goods sold $203,963 $257,528
Cash 29,429 31,267
Depreciation 57,576 65,076
Interest expense 12,530 14,345
Selling and administrative
Expenses:
40,110 52,351
Accounts payable 52,015 57,708
Net fixed assets 254,017 316,825
Sales 400,111 487,712
Accounts receivable 20,854 27,050
Notes payable 23,708 25,885
Long-term debt 128,218 143,971
Inventory 43,884 60,222
New equity 0 24,192
Sunset Boards currently pays out 50 percent of net income as dividends to Tad and the other original investors, and has a 20 percent tax rate. You are Jameson’s assistant, and he has asked you to prepare the following:
1. An income statement for 2015 and 2016.
2. A balance sheet for 2015 and 2016.
3. Operating cash flow for 2015 and 2016 year.
For Part 1 you are to complete the income statement balance sheet, and the operating cash flow for 2015 and 2016. The Week 2 Assignment Excel template to use is located under “Learning Resources” in the Week 2 thread.
All of the gray answer cells must be filled in with numbers. Some of the gray cells will require using simple math in Excel correctly to compute the correct answer. All of the yellow answer cells must be filled in with the correct item name. Page 54 in the text show what items needed to be included when building an income statement and balance sheet. Page 34 shows the formula to use to calculate the operating cash flow.
Also, be sure to submit it as an Excel file. Do not copy it on a Word file because I need to see the formulas in some of the cells.
It is also very important to use Excel formulas in cells where you are conducting math using multiple cells to prove the answers and prevent errors. Also having the correct formula in cells when needed will spontaneously change cells below it to guarantee the correct answer if those cells have the correct formula as well. Without formula in those cells, they will remain “dead” and not spontaneously change when you change data in other cells. For your balance sheet, you want to calculate the asset side (left hand side) and then total liabilities from the right-hand side. Then place in the owner’s equity number that balances both sides. So, place in the owner’s equity number last after you have calculated the assets on the left-hand side and total liabilities on the right-hand side. Also, be sure to show your work for your operating cash flow calculations for 2015 and 2016.
Overall, for the income statement you will need to calculate EBIT, EBT, Taxes, Net Income, Dividends, and Addition to Retained Earnings. For the balance sheet you will need to calculate Current Assets, Current Liabilities, Total Assets, and Total Liabilities & Equity. Also, be sure to show your work for your operating cash flow calculations for 2015 and 2016.
QUESTIONS
1. How would you describe Sunset Boards’ cash flows for 2016? Write a brief discussion.
2. In light of your discussion in the previous question, what do you think about Tad’s expansion plans?
Assignment: Case Analysis Part 2
Name:
Date:
Part 2:
Write a 250-word paper that addresses the following questions:
- How would you best describe Sunset Boards’ cash flows for 2015 and 2016? Write a brief discussion.
- In light of your discussion in the previous question, what do you think about Tad’s expansion plans?
Below are three UNRELATED EXAMPLES of how to cite within a paragraph in APA format. You need to cite resources in your Assignment to support and justify your thinking:
Haag and Cummings (2003) base their information on their experience and concepts of IT at the time, and…
The authors base their information on their experience and concepts of IT at the time, and… (Haag & Cummings, 2003).
The authors base their information on their experience and concepts of IT at the time. They stated that “…IT is the most important aspect that needs attention by upper management” (Haag & Cummings, 2003, p. 89).
