Financial Analysis Task 5

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Financial Analysis- Task 5 A. 1. Some key points of the company’s financial picture that could impact the bank officer’s decision are as follows: while there is an increase in gross profits from year 12 to 13, there is a decrease from year 13 to 14, also while the payroll and executive compensations steadily increases from year 12 to 14, advertising basically decreases, and services and utilities continue to increase as well as expenses in general. The operating income also has a major decrease from year 12 to 14, which is not good for the company as it indicates what is available to the company before a few other items need to be paid, such as preferred stock dividends and income taxes, which needs to be increasing for the company, not…show more content…
After analyzing the data provided it will be in CSI best interest for expanding operations into Europe by acquiring European SnowFun, Inc. outright. This comes from looking at the data and what each option entails. The first option is procuring a production plant. With this CSI would have the options to lease vs buy. In this, you can consider items such as interest rates, lease terms, facility expenses, and location. The good about leasing is that it is not considered a debt on the balance sheet and also there is the option to buy at the end of the term at a lower price. Also, to be considered if CSI decided to buy vs lease, are things such as maintenance costs, insurance, owner obligations, and obsolescence. If CSI leases the building and equipment, it would be left up to the lessor to maintain these things, which would also reduce some costs, on top of the fact that the lease mortgage would be less than if they bought the building. With everything that has been reviewed, I would recommend that CSI lease vs buying right now. The financial returns for the lease option are that it has a higher annual payment and a lower after tax cash flow, but does free up some instant cash and relieves CSI from owner responsibilities on the building. Leasing will also let CSI build up capital to do the end of term buy option without having to have an additional 200,000 of working capital on hand for the bank and will reduce the need for a loan and credit mark. The second option is to…show more content…
Based on the option chosen above of an acquisition for CSI, my financing recommendation is to go to have NO LONG TERM DEBT. CSI should begin by improving their costing methods and cut expenses before moving onward with any expansion product. This will hopefully help Custom Snowboards to operate above the 10% hurdle rate and make profits. I also would recommend that the company try to raise capital through bonds by cutting costs and sticking to the payment schedules. With this said, my final recommendation is that Custom Snowboards first try to improve their costing methods and reduce expenses before moving forward with the expansion. By choosing the no long term debt as the optimal capital structure, you can clearly see that it gives the greatest earnings per common stock share at 0.064 compared to the other options of -0.037, 0.054, and 0.015. There is also zero interest on the no long term debt compared to the other options. All options have a total debt of $1,000,000, so no difference there, as well as EBIT, which is $60,018 for all options. And also, net income is the best for the no long term debt option at $45,089, while the other options fall at -7,382, 29,901, and 4,589. This was all for year 15. In reviewing year 16, you can see that the no long term debt still has the highest net income at $81,294, while the other options fall at 30,669, 66,107, and 40,974. Also, again the EBIT and total debts are equal. The EBIT for all options are 108,392 and the total debts

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