Mini case study Sunset Board\'s INC PDF

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1. How would you describe Sunset Board’s cash flows for 2018? Write a brief discussion. Income of Statement on Dec 31, 2017 and Dec 31, 2018 Sunset Board’s Inc Description Sales Less: Cost of Goods Sold Less: Selling and administrative expenses Less: Depreciation EBIT (Earnings before Interests and Taxes) Less: Interest Expenses EBT (Earnings before Taxes) Less Tax @ 21%

Amount 2017 501,441 255,605 50,268 72,158 123,410 15,687 107,723 22,621

Amount 2018 611,224 322,742 65,610 81,559 141,313 17,980 123,333 25,899

Net Income

85,102

97,434

Dividend (40% of Net Income) Retained Earnings (40% of Net Income)

34,040 34,040

48,717 48,717

Balance Sheet as Dec 31, 2017 Cash Account Receivable Inventory Current Assets

36, 884 26,136 50,318 113,338

Net Fixed Assets Total Assets

318,345 431,683

Account Payable Notes Payable Current Liabilities

26,186 29,712 55,838

Long Term Debt Owners’ Equity Total Liabilities and Equity

160,686 215,159 431,683

Balance Sheet Dec 31, 2018 Cash Account Receivable Inventory Current Assets Net Fixed Assets Total Assets

55,725 33,901 67,674 157,300 387,855 545,155

Account Payable Notes Payable Current Liabilities

44,318 32,441 76,759

Long Term Debt Owners’ Equity Total Liabilities and Equity

175,340 293,056 545,155

Operating Cash Flows 2017

: 91,387 (Using Inventory)

Operating Cash Flows 2018

: 114,477 (Using Inventory)

Based on the statement of cash flows above, Sunset Board’s barely had a positive each cash flow in 2018, owning to minimal cash flows from financing activities (97,434) which means that the Sunset Board’s is creating value for stockholders. Since the operating cash flows are positive also show a good sign that Sunset Board’s has sufficient amount of money coming in to cover the everyday cash flows.

2. In light of your discussion in the previous question, what do you think about Tad’s expansion plans? When looking at the cash flows from 2017 to 2018 by 17,090 one could determine that Tad’s expansion plans seem positive. The company’s current ratio (current assets/ current liabilities) is 1.29 and 1.69 which suppliers like to see. Their profit margin which is calculated by Net Income divided by sales is 0.16%. This specifies that the company generates 16 cents in profit for every dollar in sales (Ross, Westerfield, Jordan, 2017, page 62). With this information it shows that Tad has the potential to expand his company, but he should be smart about his actions and move in small gradual steps so he does not spend too fast, and still be able earn more money along the way. Also, he will be able to produce a reliable product that customers trust....