Cash Flows and Financial Statements at Sunset Boards, Inc.

March 23, 2014

Conrad C. Parnell
Chapter 2 Mini Case

1. Statement of Income for the years ending 2008 and 2009

2008 2009
Sales $247, 259 $301,392
Cost of Goods sold 126,038 159,143
Selling/Admin 24,787 32,352
Depreciation 35,581 40,217
EBIT $60,853 $69,680
Interest 7,735 8,866
EBT $53,118 $60,814
Taxes 10,624 12,163
Net Income $42,494 $48,651

Dividends $21,247 $24,326

2. Balance sheet for the year end December 31, 2008

Cash $18,187 Accounts Payable $32,143

Accounts Rec 12,887 Notes Payable 14, 651
Inventory 27,119 Current Liabilities $46, 794
Current Assets $58,193

Net Fixed assets $156,975 Long-term debt $79,235

Total assets 215,168 Owner’s Equity 89,139
Total Liab/equity $215,168

For Sunset Boards, the equity is not given in the first year; therefore, we have to calculate it
ourselves.

2b. Balance sheet for the year end December 31, 2009

Cash $27,478 Accounts Payable $36, 404

Accounts Rec 16,717 Notes Payable 15,997
Inventory 37,216 Current Liabilities $52, 401
Current Assets $81, 411
 Cash Flows and Financial Statements at Sunset Boards, Inc. March 23, 2014

Net Fixed assets $191, 250 Long-term debt $91, 195

Total assets 272, 661 Owner’s Equity 129, 065
Total Liab/equity $272, 661

For the year 2009, owner’s equity is the beginning of the years equity plus additions to retained
earnings and new equity.

$89,139+24,326+15,600 = $129,065

3. Operating Cash Flow

Formula for computation: EBIT+ Depreciation – Taxes (taken from the Income Statement)

2008 Operating Cash Flow

$60, 853 + 35, 581 – 10, 624 = $85, 180

2009 Operating Cash Flow

$69, 680 + 40, 217 – 12, 163 = $97,734

4. Cash Flow from assets for 2009

For the year 2009, capital spending is unknown and we must calculate it along with the change in
net working capital

Capital spending should look like:

Fixed assets – beginning fixed assets + Depreciation = Net capital spending

$191, 250 – 156, 975 + 40,217 = $74, 492

Change in net working capital = Ending NWC – Beginning NWC

$29, 010 – 11, 399 = $17, 611

Now you are able to plug in this number to find what the cash from assets is for 2009
 Cash Flows and Financial Statements at Sunset Boards, Inc. March 23, 2014

Operating cash flow – net capital spending – change in NWC = cash flow from assets

$97, 734 – 74, 492 – 17, 611 = $5, 631

5. Cash flow to creditors for 2009

Interest paid – net new borrowing = cash flow to creditors

$8, 866 – 11, 960 = - $3, 094 loss

6. Cash Flow to Stockholders

Dividends paid – new equity raised

$24,326 – 15,600 = $8,726

According to the three cash flow analysis evaluated, it is clear that Sunset Boards is a positive
that generated positive cash flows. Speaking more specifically to the financials, $5,631 was
generated to stakeholders, an increase in $3,094 and $8,726 paid to stockholders.

In reviewing the numbers from the two previous years, it appears that Sunset Boards has a
positive cash flow, however; there is vast amount going to capital spending in the early stages of
the business. Tad should market and track his capital spending and formulate and solid business
plan with the financials computed and apply for a bank loan at a later date.