Currently Competition Bikes purchases inventory for production the month before it goes to the production line. To ensure that inventory is being used in a smart way, the company should negotiate terms with fewer manufacturers to purchase materials on consignment. This would allow the materials to be stored at the manufacturing facility to be available on demand without the necessity of carrying that inventory in the books. The inventory would then be purchased and paid for at the time of use. This reduces the carrying costs of the inventory that is ordered as well as insuring that unused items are not held from month to month.
This ratio determines the rate and ability in which the company is able to pay its debts off. For Huffman Trucking the calculation would look like this for 2011: $94,520/$466 = 202.83 (Huffman Trucking, 2013). Liabilities and Shareholders' Equity Current Liabilities Accounts Payable $40,843 $45,381 Salaries & Wages 37,299
Debt capital is the borrowed money, typically long-term, that is used to invest in the company to finance growth (Investopedia, 2014). Competition Bikes has determined it will need $600,000 to fund the Canadian expansion if the decision is made to move forward with the expansion. There are five alternative capital sources that have been identified and that are available to optimize the company’s capital structure after obtaining the funds necessary for expansion. These alternative capital sources use a combination of bonds, preferred stock, and common stock for years 9 through 13: * 100% of 12% bonds * 50% preferred and 50% common stock * 20% of 12%
The investment for a new plant is 70 million dollars. If an entrant company has about 10% of the share (compared to the incumbent share of 35%) the profit for the company will be about 2 M. Ignoring the discount rate, it will take about 35 years to recover the cost of the new plant. This shows that the industry is capital intensive and it will be not an easy decision for a company to enter this industry. Additionally the plants are a scale intensive investment. For a 250 million sq ft plant the rate per square feet comes to 0.25 whereas for an 80 million sq ft facility this rate is 0.43.
Old Turkey Mash Case: The firm has been writing off all the warehousing and oak barrel costs incurred as they are capitalizing these items as period cost which has a direct impact on their Net income. In the given income statement the cost incurred during the period is written off in the same year. Therefore the cost of production which is still in process of aging is charged against the revenue due to which net profit is decreased. The firm has is now under pressure (result of projected losses in the third year) as they ask the local bank to finance the production expansion which is likely to finance only profitable ventures. The firm should change their accounting style and use product cost model so that the firm only capitalizes the revenues and cost when they sell a unit of bottled old turkey.
Case 1 Solution: Problem Identification: How should a company report, if at all, cash and non-cash transactions owed to an entity’s financial subsidiary? Keywords: Cash flows; financ* subsidiaries; operating income. Conclusion: Per ASC 230-10-50-5), Mead should exclude transactions that involve no cash payments or receipts. However, per 230-10-45-17, it should record cash payments to GMCC for repayments of principle (and interest thereon) due to suppliers or their subsidiaries as operating cash (out) flows. Case 2: Narda Corporation agreed to sell all of its capital stock to Effie Corporation for three monthly payments of $200,000.
It will show where it comes from, and where it goes. This indicates the company’s profitability, as shown in the net income, and their ability to meet obligated debts. It is possible for a company to have success in sales and net earnings and still fail to generate enough cash flow to meet obligations. The Home Depot is reporting a well maintained cash balance as reported in the balance sheet, and its operations continue to keep the influx of cash coming. The Home Depot cash flow shows significant net earnings and the cash flow statement does not indicate a drastic drop from previous years.
Western Governors University JET2 Financial Analysis Task 1-Financial Statement Analysis and Controls A. 1a. Evaluate the company’s operational strengths and weaknesses based on the review of the horizontal analysis, analyze results and discuss operational areas of concern: This financial analysis will serve as a review of financial statements of Competition Bikes, Incorporated. The financial analysis will help Competition Bikes determine areas of strengths and weaknesses and give recommendation and uncover areas needing improvement thus improving financial viability. Horizontal analysis is a financial statement analysis technique that demonstrates changes in the amount of corresponding financial statement items over period of time.
If a business is operating correctly then it should generate cash surplus. The faster this company expands the more cash it will need for working capital. There are two elements in the business cycle that absorb cash. Receivables and inventory. One specific method of increasing working capital is related to improving internal controls such as optimizing the systems used for maintaining accounts receivables.
In order to do this the company has to have a capital structure that is sufficient enough to be able to increase its cash flow, pay its debts, and have a return on its investments. This method has to also offer an option that will minimize the company's overall cost while providing addition dividends to investors at the least possible risk. To determine this we will use Earnings per share from the table