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Busn 79 Finance Essay

630 words - 3 pages

Case Study
Vanessa Benicio
Devry University
July 19, 2015

This paper covers Sunset Boards which is a small company that deals in manufacturing and sell of surfboards in Malibu. The company designs and sales it own surfboards without outsourcing for help and this is done by the founder of the company, Tad Marks. However, given that the Tad Marks has no business background, there has been poor maintenance of the financial records. The initial investment of the company comes up as a result of provision by Tad and his friends as well as family. Given that the initial investment of the company was somehow small, the company made a few surfboards just for its stores.
Cash flow statements normally are known to show the amount of cash that comes into a company and the amount that goes out. Usually, this amount is determined over a given period of time say quarterly or ...view middle of the document...

This kind of flow is luring to the investors and any potential investor would put their amount in this company. The use of cash flow from operating activities is preferred for Sunset Boards rather than using the earnings this is because the non-cash earnings that are got cannot always be used to settle bills.
On the other hand the net cash flow from assets is negative indicating a possible purchase of additional assets by the company in line with its expansion ambitions. Additionally, this could also mean that Sunset Board is at its formative years and still growing. The amount that the company has set on assets and other purchases are too much hence the negative net cash flow. This signalizes that the company is optimistic and looking forward to grow in the future.
The cash flow from creditors is also positive showing that the company is operating on short term gearing which represents a liability to the company. The cash flow to stock holders is negative showing payment of dividends. This is a good sign to potential investors who would want to invest in the company and get 50% of net earnings as dividends under the current dividend policy. Additionally, the company, Sunset Boards tends to be confident in its stock performance and would keep it going forward for the sake of the company gains.
The cash flow from the operating activities clearly compared to the net income, it is evident that the cash accruing from operating activities is greater than the net income. To this end, one can say that the net income from the company is of high quality. In conclusion the cash flow of the company is robust enough to sustain its operational needs and also finance an expansion.
Tad’s Expansion Plan
Tad’s expansion plan is a viable one and the company has the financial muscle to finance and also a healthy balance sheet to attract investors and obtain debt from lending institutions. Thus, TAD should progress to see its expansion plan happen.

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