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Cash Flows and Financial Statements at Sunset Boards, Inc
Cash Flows and Financial Statements at Sunset Boards, Inc. Sunset Boards is a small company that manufactures and sells Sunset Boards currently pays out 50 percent of net surfboards in Malibu. Tad Marks, the founder of the company, income as dividends to Tad and the other original investors, is in charge of the design and sale of the surfboards, but his and has a 20 percent tax rate. You are Christina's assistant, and background is in surfing, not business. As a result, the compa she has asked you to prepare the following: ny's financial records are not well maintained. The initial investment in Sunset Boards was provided by 1. An income statement for 2008 and 2009. Tad and his friends and family. Because the initial investment 2. A balance sheet for 2008 and 2009. was relatively small, and the company has made surfboards 3. Operating cash flow for each year. only for its own store, the investors haven't required detailed 4. Cash flow from assets for 2009, financial statements from Tad. But thanks to word of mouth among professional surfers, sales have picked up recently, and 5. Cash flow to creditors for 2009. Tad is considering a major expansion. His plans include open 6. Cash flow to stockholders for 2009. ing another surfboard store in Hawaii, as well as supplying his "sticks" (surfer lingo for boards) to other sellers. QUESTIONS Tad's expansion plans require a significant investment, which he plans to finance with a combination of additional 1. How would you describe Sunset Boards' cash flows for funds from outsiders plus some money borrowed from banks. 2009? Write a brief discussion. Naturally, the new investors and creditors require more orga 2. In light of your discussion in the previous question, nized and detailed financial statements than Tad has previ what do you think about Tad's expansion plans? ously prepared. At the urging of his investors. Tad has hired financial analyst Christina Wolfe to evaluate the performance of the company over the past year. After rooting through old bank statements, sales receipts, tax returns, and other records, Christina has assembled the fol- lowing information: Cost of goods sold Cash Depreciation Interest expense Selling and administrative Accounts payable Net fixed assets Sales Accounts receivable Notes payable Long-term debt Inventory New equity 2008 $126,038 18,187 35,581 7,735 24,787 32, 143 156,975 247,259 12,887 14,651 79,235 27.119 0 2009 $159,143 27.478 40,217 8,866 32,352 36,404 191,250 301,392 16,717 15,997 91.195 37,216 15,600.
Expert Solution
SOLUTION 1:
The cash flow 2009 of the company provides overview of operating cash flow, cash flow to creditors, and cash flow to stockholders.
Operating Cash Flow :The Operating cash flows shows the cash generated from the business from its day to day operations. It also reflects that the cash inflows are enough for doing the day to day operation of the business.
Both year of company had the positive cash flows. This will help them to cover all business related activity.
cash flow to creditors, and cash flow to stockholders:The cash flow from the assets represents the total cash flow from the shareholders and creditors. This is the cash which business is generated from their assets, it also consist the operating cash flow and change in net working capital. The cash flow from the assets in year 2009 was $5,632 . Net capital spending is considered as the money spends on the fixed assets less the money received from the selling of various fixed assets. Company cash flow from the assets also positive which shows that assets are par from the debt and dividend to stockholders.
(for learning purpose i give you explanation below the solution 2)
SOLUTION2:
According to analysis, I can say that the financial position of the Sunset Boards is good and they are able to expand their business. The cash flow from the operation shows that they have enough cash for paying the amount for daily activity. But the cash flow from the creditors is negative because they are invested in fixed assets which reflect growth part of the company. If we see the cash flow to stockholders then you can see company have enough amounts to pay their stockholders. So, According to analysis we can say that the company has enough cash flow potential to pay the creditors and their investors
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EXPLANATION :
I do analysis of the company financial information. This information help the company for securing there finance need from investor also creditors for funding of Tad expansion plans. This memo focuses on financial statement and analysis of cash flow for 2009.
| SUNSET BOARD | ||
| INCOME STATEMENTS | ||
| AS DECEMBER 31,2008 & 2009 | ||
| 2008 | 2009 | |
| NET SALES | 247,259 | 301,392 |
| Less: COGS | 126,038 | 159,143 |
| Gross Profit | 121,221 | 142,249 |
| Less : Selling Expenses | 24,787 | 32,352 |
| Less: Depriciation | 35,581 | 40,217 |
| Earning Before interest and Tax | 60853 | 69,680 |
| Less: interest expenses | 7735 | 88,66 |
| Earning Before Tax | 53118 | 60814 |
| income tax@ 20% | 10624 | 12162 |
| Earning After Tax(Net Income) | 42494 | 48652 |
| Less : Dividend@50 % | 21247 | 24326 |
| Retained Earning | 21247 | 24326 |
| SUNSET BOARD | ||
| BALANCE SHEET | ||
| AS DECEMBER 31,2008 & 2009 | ||
| 2008 | 2009 | |
| ASSETS | ||
| CURRENT ASSETS | ||
| CASH | 18,187 | 27,478 |
| Account Receivable | 12,887 | 16,717 |
| Inventory | 27,119 | 37,216 |
| Total CURRENT ASSETS | 58,193 | 81,411 |
| Fixed Assest(Net) | 156,975 | 191,250 |
| TOTAL ASSEST | 215168 | 272,661 |
| LIABILITIES | ||
| CURRENT LIABILITIES | ||
| accounts Payable | 32,143 | 36,404 |
| Notes payable | 14,651 | 15,997 |
| TOTAL CURRENT LIABILITIES | 46794 | 52,401 |
| LONG TERM DEBT | 79,235 | 91,195 |
| TOTAL LIABILITIES | 126029 | 143596 |
| EQUITY | ||
| OWNER EQUITY | 67,892 | 67,892 |
| Contributed Capital | 0 | 15,600 |
| Retained Earnings | 21,247 | 45573 |
| TOTAL EQUITY | 89,139 | 129,065 |
| TOTAL EQUITY & LIABILITIES | 215168 | 272,661 |
Cash Flows
The cash flow 2009 of the company provides overview of operating cash flow, cash flow to creditors, and cash flow to stockholders.
Operating Cash Flow
The Operating cash flows shows the cash generated from the business from its day to day operations. It also reflects that the cash inflows are enough for doing the day to day operation of the business.
| Operating Cash Flow for 2008 and 2009 | ||
| 2008 | 2009 | |
| Earnings before Interest and Taxes | 60853 | 69,680 |
| Add: Depreciation | 35,581 | 40,217 |
| Less: Income Tax | 10624 | 12162 |
| Net Cash Flow from Operating Activities | 85,810 | 97,735 |
According to above analysis we can say that the both year of company had the positive cash flows. This will help them to cover all business related activity.
The cash flow from the assets represents the total cash flow from the shareholders and creditors. This is the cash which business is generated from their assets, it also consist the operating cash flow and change in net working capital.
Capital Spending = Ending Net Fixed Assets - Beginning Fixed Assets + Depreciation
Capital Spending = 191,250-156,975+40,217
Capital Spending = $74,492
Addition to Working Capital = Ending working capital - Beginning working capital
Addition to Working Capital = ($81,411-$52,401)-($58,193-$46,794)
Addition to Working Capital = $17,611
Cash Flow from Assets = Operating Cash flow - Capital Spending - Addition to Net Working Capital
Cash Flow from Assets=97,735 -$74,492-$17,611
Cash Flow from Assets = $5,632
The cash flow from the assets in year 2009 was $5,632 . Net capital spending is considered as the money spends on the fixed assets less the money received from the selling of various fixed assets. Company cash flow from the assets also positive which shows that assets are par from the debt and dividend to stockholders.
Cash Flow to Creditors
The net cash paid to the creditors show by the Cash flow to creditors. This will be calculated by the subtracting New Long-term Debt from interest paid.
Cash Flow to Creditors = Interest paid - New Long-term Debt
Cash Flow to Creditors = $88,66-($91,195-$79,235)
Cash Flow to Creditors = ($3,094)
Cash Flow to Stockholders
The cash flow from the stockholders shows the net cash that is paid to stockholders. This will be calculated by the subtracting Ending Equity from Beginning Equity from Addition to Retained Earnings.
New Equity = Ending Equity - Beginning Equity - Addition to Retained Earnings
New Equity = $129,065-$89,139-($45573-$21,247)
New Equity = $15,600
Cash Flow to Stockholder's = Dividend Paid - Net New Equity
=$24326-$15,600
=$8726
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