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Chapter 6 Mini Case

In: Business and Management

Submitted By meghanmichel94
Words 1319
Pages 6
Meghan Michel
Finance 403 Chapter 6 Mini Case

a. What effect did the expansion have on sales and net income?
Sales increased 70% off of the $3,432,000 in 2014 to $5,834,000 in 2015. Revenue went up by 2.4 million dollars but cost of goods sold went up by 2.1 million dollars therefore it is of no surprise that EBIT fell
Net income fell from $87,960 to ($95,136) despite the 70% increase in sales due to the 2.6 million dollar increase in total operating expenses.
What effect did the expansion have on the asset side of the balance sheet?
Assets nearly doubled from $1,468,800 to $2,886,592, and net fixed assets increased by $594,990 from $344,800 to $939,790.
The purpose of increasing assets is to generate more revenue, but in this case Computron did not generate enough to justify the investments.
The inventory rose from $715,200 to $1,287,360 and accounts receivable almost doubled increasing to $632,160 in 2015 from 2014’s $351,200.
What effect did it have on the liabilities and equity?
The financing needed for the expansion caused the current liabilities to increase from $481,600 to $1,328,960. Long term debt increased to help with financing but no new stocks were issued

b. What do you conclude from the statement of cash flows?
This statement of cash flows shows the impact of buying and selling fixed assets, cash transactions with shareholders, and the borrowing and repaying lenders to pay for the expansion.
Although sales nearly doubled, it still was not enough to cover all of the money borrowed and justifies the rule to only buy assets that one can fund.
The net cash flow from operations is down ($503,936) due to the lack of collection of cash from accounts receivables and the increase of cash used to purchase an abundance of inventory for the expansion.
The net cash from investing activities is down (683,350) from heavily investing in…...

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