JET Task 5 Custom Snowboards Inc Financial Data Evaluation Notes (1012) (1)

7/22/2019 JET Task 5 Custom Snowboards Inc Financial Data Evaluation Notes (1012) (1)

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Revision Date: 09/07/2012 T Koebler

39800 41200 41000

Units Sold

Year 14 Year 13 Year 12REVENUE:

Net Sales 6,407,800 6,633,200 6,601,000

Cost of Goods Sold 4,457,600 4,614,400 4,592,000

Gross Profit 1,950,200 2,018,800 2,009,000

OPERATING EXPENSES

Selling Expenses

Transportation ($5 per board) 218,900 226,600 225,500

Sales Commissions 298,500 309,000 307,500

Advertising 238,800 247,200 246,000

Total Selling Expense 756,200 782,800 779,000

General and Admin Expenses

Administrative Payroll 250,000 220,000 210,000

Executive Compensation 215,000 195,000 190,000

Research and Development 90,000 90,000 90,000Website Creation and Maintenance 12,000 12,000 12,000

Depreciation Expense 100,000 100,000 100,000

Utilities & Services 260,000 255,000 238,000

Other General and Admin Expenses 170,000 158,000 120,500

Total General and Admin Expenses 1,097,000 1,030,000 960,500

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Custom Snowboards Inc.

Income StatementDecember 31, Years 12, 13, and 14


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Year 14 Year 13 Year 12

ASSETS

Current Assets:

Cash and Cash Equivalents 238,373 222,442 121,000

Short-Term Investments 30,000 180,000 150,000

Accounts Receivable, net 192,234 198,996 198,030

Raw Materials Inventory 35,820 37,080 36,900

Finished Goods Inventory 133,728 138,432 137,760Other Current Assets 110,000 104,000 95,000

Total Current Assets 740,155 880,950 738,690

Property and Equipment, at cost:

Land 100,000 100,000 100,000

Manufacturing Plants and Offices 800,000 800,000 800,000

Furniture, Fixtures and Equipment 500,000 300,000 300,000

1,400,000 1,200,000 1,200,000

Less Accumulated Depreciation (400,000) (300,000) (200,000)

Net Property and Equipment 1,000,000 900,000 1,000,000

TOTAL ASSETS 1,740,155 1,780,950 1,738,690

LIABILITIES

Current Liabilities:

Accounts and Notes Payable 71,640 74,160 73,800

Current Portion of Long Term Debt 55,000 55,000 55,000

Total Current Liabilities 126,640 129,160 128,800

Long-Term Liabilities:Mortgage Payable 700,000 750,000 800,000

Other Long-Term Liabilities 50,000 55,000 60,000

Total Long-Term Liabilities 750,000 805,000 860,000

Total Liabilities 876,640 934,160 988,800

STOCKHOLDERS' EQUITY:

Custom Snowboards, Inc.

Balance SheetsDecember 31, Years 12, 13, and 14


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REVENUE: Change % Inc (Dec) Change

Net Sales 6,407,800 6,633,200 6,601,000 (225,400) -3.40% 32,200

Cost of Goods Sold 4,457,600 4,614,400 4,592,000 (156,800) -3.40% 22,400

Gross Profit 1,950,200 2,018,800 2,009,000 (68,600) -3.40% 9,800

OPERATING EXPENSES

Selling ExpensesTransportation Out 218,900 226,600 225,500 (7,700) -3.40% 1,100

Sales Commissions 298,500 309,000 307,500 (10,500) -3.40% 1,500

Advertising 238,800 247,200 246,000 (8,400) -3.40% 1,200

Total Selling Expense 756,200 782,800 779,000 (26,600) -3.40% 3,800


Administrative Salaries 250,000 220,000 210,000 30,000 13.64% 10,000

Executive Compensation 215,000 195,000 190,000 20,000 10.26% 5,000

Utilities 260,000 255,000 238,000 5,000 1.96% 17,000

Research and Development 90,000 90,000 90,000 0 0.00% 0Website Creation and Maintenance 12,000 12,000 12,000 0 0.00% 0

Depreciation Expense 100,000 100,000 100,000 0 0.00% 0

Other General and Admin Expenses 170,000 158,000 120,500 12,000 7.59% 37,500

Total General and Admin Expenses 1,097,000 1,030,000 960,500 67,000 6.50% 69,500

Total Operating Expenses 1,853,200 1,812,800 1,739,500 40,400 2.23% 73,300

OPERATING INCOME 97,000 206,000 269,500 (109,000) -52.91% (63,500)

Interest Income (Expense):

Interest Income 300 3,200 2,500 (2,900) -90.63% 700

Horizontal AnalysisYears 14 and 13

HorizontalYears 13 a


Comparative Income Statements

December 31, Years 12, 13, and 14


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Interest Expense -75,000 -80,000 -85,000 5,000 -6.25% 5,000

Interest, net -74,700 -76,800 -82,500 2,100 -2.73% 5,700

EARNINGS BEFORE INCOME TAXES 22,300 129,200 187,000 (106,900) -82.74% (57,800)

Provision for Income Taxes 5,575 32,300 46,750 (26,725) -82.74% (14,450)NET EARNINGS 16,725 96,900 140,250 (80,175) -82.74% (43,350)


ASSETS

Current Assets: Change % Inc (Dec) Change

Cash and Cash Equivalents 238,373 222,442 121,000 15,931 7.2% 101,442Short-Term Investments 30,000 180,000 150,000 (150,000) -83.3% 30,000

Accounts Receivable, net 192,234 198,996 198,030 (6,762) -3.4% 966

Raw Materials Inventory 35,820 37,080 36,900 (1,260) -3.4% 180

Finished Goods Inventory 133,728 138,432 137,760 (4,704) -- 672

Other Current Assets 110,000 104,000 95,000 6,000 5.8% 9,000

Total Current Assets 740,155 880,950 738,690 (140,795) -16.0% 142,260


Land 100,000 100,000 100,000 0 0.0% 0

Manufacturing Plants and Offices 800,000 800,000 800,000 0 0.0% 0

Furniture, Fixtures, and Equipment 500,000 300,000 300,000 200,000 66.7% 0

1,400,000 1,200,000 1,200,000 200,000 16.7% 0

Less Accumulated Depreciation -400,000 -300,000 -200,000 (100,000) 33.3% (100,000)

Net Property and Equipment 1,000,000 900,000 1,000,000 100,000 11.1% (100,000)

TOTAL ASSETS 1,740,155 1,780,950 1,738,690 (40,795) -2.3% 42,260

LIABILITIES


Accounts and Notes Payable 71,640 74,160 73,800 (2,520) -3.4% 360

Current Portion of Long-Term Debt 55,000 55,000 55,000 0 0.0% 0

HorizontalYears 13 a


omparat ve a ance eetsDecember 31, Years 14 and 13

Years 14 and 13

Horizontal Analysis


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Total Current Liabilities 126,640 129,160 128,800 (2,520) -2.0% 360

Long-Term Liabilities:

Mortgage Payable 700,000 750,000 800,000 (50,000) -6.7% (50,000)

Other Long-Term Liabilities 50,000 55,000 60,000 (5,000) -9.1% (5,000)

Total Long-Term Liabilities 750,000 805,000 860,000 (55,000) -6.8% (55,000)

Total Liabilities 876,640 934,160 988,800 (57,520) -6.2% (54,640)


Common Stock ($1.00 Par) 200,000 200,000 200,000 0 0.0% 0

Paid In Capital 400,000 400,000 400,000 0 0.0% 0

Retained Earnings 263,515 246,790 149,890 16,725 6.8% 96,900

Total Stockholders' Equity 863,515 846,790 749,890 16,725 2.0% 96,900

TOTAL LIABILITIES and EQUITY 1,740,155 1,780,950 1,738,690 (40,795) -2.3% 42,260


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Winter

Sports

Ratio Analysis: Year 14 Year 13 Year 14

Current Ratio 5.84 6.82 4.20

% Inc (Dec)

0.49% Acid-Test Ratio 3.64 4.66 3.40

0.49%

0.49% Inventory Turnover 33.3 33.4 30.4

Average Collection Period 11.0 11.0 32.5

0.49% Debt Ratio 50.4% 52.5% 38.0%

0.49%

0.49% Gross Profit Margin 30.4% 30.4% 32.1%

0.49%

Operating Profit Margin 1.5% 3.1% 5.2%

4.76% Net Profit Margin 0.3% 1.5% 5.1%

2.63%

7.14% Earnings per Share 0.02 0.11 0.08

0.00%0.00% Return on Total Assets 1.0% 5.4% 4.8%

0.00%

31.12% Return on Common Equity 1.9% 11.4% 8.10%

7.24%

Price / Earnings Ratio 170.52 90.82 29.00

4.21%

-23.56% Times Interest Earned 1.29 2.58 5.10

28.00%


nalysisnd 12


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-5.88%

-6.91%

-30.91%

-30.91%

-30.91%

% Inc (Dec)

83.8%

20.0%

0.5%

0.5%

--

9.5%

19.3%

0.0%

0.0%

0.0%

0.0%

50.0%

-10.0%

2.4%

0.5%

0.0%

nalysisnd 12


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0.3%

-6.3%

-8.3%

-6.4%

-5.5%

0.0%

0.0%

64.6%

12.9%

2.4%


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REVENUE:

Net Sales 6,407,800 100.0% 6,633,200 100.0% 6,601,000 100.0%

Cost of Goods Sold 4,457,600 69.6% 4,614,400 69.6% 4,592,000 69.6%

Gross Profit 1,950,200 30.4% 2,018,800 30.4% 2,009,000 30.4%

OPERATING EXPENSES

Selling Expenses

Transportation Out 218,900 3.4% 226,600 3.4% 225,500 3.4%

Sales Commissions 298,500 4.7% 309,000 4.7% 307,500 4.7%Advertising 238,800 3.7% 247,200 3.7% 246,000 3.7%

Total Selling Expense 756,200 11.8% 782,800 11.8% 779,000 11.8%


Administrative Salaries 250,000 3.9% 220,000 3.3% 210,000 3.2%

Executive Compensation 215,000 3.4% 195,000 2.9% 190,000 2.9%

Research and Development 90,000 1.4% 90,000 1.4% 90,000 1.4%

Website Creation and Maintenance 12,000 0.2% 12,000 0.2% 12,000 0.2%

Depreciation Expense 100,000 1.6% 100,000 1.5% 100,000 1.5%

Utilities & Services 260,000 4.1% 255,000 3.8% 238,000 3.6%

Other General and Admin Expenses 170,000 2.7% 158,000 2.4% 120,500 1.8%Total General and Admin Expenses 1,097,000 17.1% 1,030,000 15.5% 960,500 14.6%

Total Operating Expenses 1,853,200 28.9% 1,812,800 27.3% 1,739,500 26.4%

OPERATING INCOME 97,000 1.5% 206,000 3.1% 269,500 4.1%

Interest Income (Expense):

Interest Income 300 0.0% 3,200 0.0% 2,500 0.0%

Interest Expense -75,000 -1.2% -80,000 -1.2% -85,000 -1.3%

Interest, net -74,700 -1.2% -76,800 -1.2% -82,500 -1.2%

EARNINGS BEFORE INCOME TAXES 22,300 0.3% 129,200 1.9% 187,000 2.8%

Provision for Income Taxes 5,575 0.1% 32,300 0.5% 46,750 0.7%


Comparative Income Statements - Vertical AnalysisDecember 31, Years 12, 13, and 14


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NET EARNINGS 16,725 0.3% 96,900 1.5% 140,250 2.1%


ASSETS

Current Assets:

Cash and Cash Equivalents 238,373 13.7% 222,442 12.5% 121,000 7.0%

Short-Term Investments 30,000 1.7% 180,000 10.1% 150,000 8.6%

Accounts Receivable, net 192,234 11.0% 198,996 11.2% 198,030 11.4%

Raw Materials Inventory 35,820 2.1% 37,080 2.1% 36,900 2.1%

Finished Goods Inventory 133,728 7.7% 138,432 7.8% 137,760 7.9%Other Current Assets 110,000 6.3% 104,000 5.8% 95,000 5.5%

Total Current Assets 740,155 42.5% 880,950 49.5% 738,690 42.5%


Land 100,000 5.7% 100,000 5.6% 100,000 5.8%

Manufacturing Plants and Offices 800,000 46.0% 800,000 44.9% 800,000 46.0%

Furniture, Fixtures and Equipment 500,000 28.7% 300,000 16.8% 300,000 17.3%

1,400,000 80.5% 1,200,000 67.4% 1,200,000 69.0%

Less Accumulated Depreciation (400,000) -23.0% (300,000) -16.8% (200,000) -11.5%

Net Property and Equipment 1,000,000 57.5% 900,000 50.5% 1,000,000 57.5%

TOTAL ASSETS 1,740,155 100.0% 1,780,950 100.0% 1,738,690 100.0%LIABILITIES


Accounts and Notes Payable 71,640 4.1% 74,160 4.2% 73,800 4.2%

Current Portion of Long-Term Debt 55,000 3.2% 55,000 3.1% 55,000 3.2%

Total Current Liabilities 126,640 7.3% 129,160 7.3% 128,800 7.4%

Long-Term Liabilities:

Mortgage Payable 700,000 40.2% 750,000 42.1% 800,000 46.0%

Other Long-Term Liabilities 50,000 2.9% 55,000 3.1% 60,000 3.5%

Total Long-Term Liabilities 750,000 43.1% 805,000 45.2% 860,000 49.5%

Total Liabilities 876,640 50.4% 934,160 52.5% 988,800 56.9%

Custom Snowboards Inc

December 31, Years 12, 13, and 14

Balance Sheets - Vertical Analysis


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Common Stock ($1.00 Par) 200,000 11.5% 200,000 11.2% 200,000 11.5%

Paid In Capital 400,000 23.0% 400,000 22.5% 400,000 23.0%

Retained Earnings 263,515 15.1% 246,790 13.9% 149,890 8.6%

Total Stockholders' Equity 863,515 49.6% 846,790 47.5% 749,890 43.1%

TOTAL LIABILITIES and EQUITY 1,740,155 100.0% 1,780,950 100.0% 1,738,690 100.0%


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Net Sales 6,407,800 6,633,200 6,601,000

Trend Percentages (Year 12 as base) 97.1% 100.5% 100.0%Year to Year Increase 96.6% 100.5%

Year 17 Year 16 Year 15 Year 14

Net Sales 6,647,452 6,535,956 6,600,034 6,407,800

Trend Percentages (Year 14 as base) 103.7% 102.0% 103.0% 100.0%

Year to Year Increase 101.7% 99.0% 103.0%


Historical Trend AnalysisDecember 31, Years 1214


Forecasted Trend AnalysisDecember 31, Years 1417


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Year 19 Year 18 Year 17 Year 16 Year 15

REVENUE:

Net Sales 2,232,990 2,029,991 1,845,446 1,537,872 1,281,560

Cost of Goods Sold 1,692,079 1,538,254 1,398,413 1,165,344 971,120

Gross Profit 540,911 491,737 447,034 372,528 310,440

OPERATING EXPENSES

Selling and Admin Expenses

Advertising 80,000 80,000 100,000 100,000 100,000

Sales Commissions 27,046 24,587 22,352 18,626 15,522

Transportation Out ($5/unit) 69,348 63,043 57,312 47,760 39,800

Factory Manager/Staff 66,853 63,669 60,638 57,750 55,000

Total Selling and Admin 243,246 231,299 240,301 224,136 210,322

Depreciation Expense* 40,000 40,000 40,000 40,000 40,000

EARNINGS 257,665 220,438 166,732 108,392 60,118


Comparative Pro Forma Income StatementsDecember 31, Years 1519

The management of Custom Snowboards has prepared the following projected income statements for an anticipated

expansion to Europe. Different potential financing options are presented in the spreadsheets that follow.

European Sales Forecast


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EBIT from European Forecast

Insert the EBIT from the European Sales Forecast into the box. Each year can be analyzed individually. Year 15 60,118

Year 16 108,392

CHOOSING AN OPTIMAL CAPITAL STRUCTURE Year 17 166,732Year 18 220,438

Year 19 257,665

30% Long-Term 80% Long-Term

Alternative Capital Sources Long Term Debt and Debt and No Long-

Debt Common Common Term Debt

Long Term Debt 1,000,000 300,000 800,000

Preferred

Common * 700,000 200,000 1,000,000

Total 1,000,000 1,000,000 1,000,000 1,000,000

Earnings before Interest and Tax (EBIT) 0 0 0 0

Interest on Long Term Debt 67,500 20,250 54,000 0

Income before tax (EBT) -67,500 -20,250 -54,000 0Income Tax (35% marginal rate) -23,625 -7,088 -18,900 0

Net Income -43,875 -13,163 -35,100 0

Total Income Available for Common Stock -43,875 -13,163 -35,100 0

Common Stock Shares Outstanding 200,000 550,000 300,000 700,000

Earnings per Common Stock share -0.219 -0.024 -0.117 0.000

* Capital received from the additonal shares: $2.00 per share consisting of $1 par value plus $1 of additional paid in capital.


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Year 15 Year 16 Year 17 Year 18 Year 19

Expected Annual Sales Increase from Europe 1,281,560 1,537,872 1,845,446 2,029,991 2,232,990

Expected Costs of New Product:

Cost of Goods Sold 971,120 1,165,344 1,398,413 1,538,254 1,692,079Depreciation on European Fixed Assets 40,000 40,000 40,000 40,000 40,000

Selling and administrative expenses 210,322 224,136 240,301 231,299 243,246

Income before taxes 60,118 108,392 166,732 220,438 257,665

Income tax at 25% marginal rate 15,030 27,098 41,683 55,109 64,416

Net income 45,089 81,294 125,049 165,328 193,249

Net cash flow (Net Income with Depreciation) 85,089 121,294 165,049 205,328 233,249

Net Present Value at a minimum expected 10% Cost of Capital 10% Present

Cash Flows PV Factors Value

Year 15 85,089 0.909 77,345

Year 16 121,294 0.826 100,189

Year 17 165,049 0.751 123,952

Year 18 205,328 0.683 140,239

Year 19 233,249 0.621 144,847

Working Capital Return 200,000 0.621 124,200

Salvage Return 400,000 0.621 248,400

Total Present Value 959,173

Investment 1,000,000Net Present Value -40,827

Internal Rate of Return:

Cash Flows

Investment -1,000,000

Year 15 85,089

Year 16 121,294

Year 17 165,049

Year 18 205,328Year 19 833,249

Projected Five-Year Income Statements for European operations


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Internal Rate of Return 8.9%


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Loan Payment: 189,917.12

Loan Beg., Year End Year

End of Year Payments Principal Interest Principal Principal

15 189917 800,000 48,000 141,917 658,083

16 189917 658,083 39,485 150,432 507,651

17 189917 507,651 30,459 159,458 348,193

18 189917 348,193 20,892 169,026 179,167

19 189917 179,167 10,750 179,167 0

Loan Operational Total Tax After Tax

End of Year Payments Costs Depreciation Interest Deductions Shields Cash Flows

15 189917 25,000 35,000 48,000 297,917 74,479 140,438

16 189917 25,000 35,000 39,485 289,402 72,351 142,567

17 189917 25,000 35,000 30,459 280,376 70,094 144,823

18 189917 25,000 35,000 20,892 270,809 67,702 147,215

19 189917 25,000 35,000 10,750 260,667 65,167 149,750

After Tax Present Value Present Value After Tax Present Value Present Value

End of Year Cash Flows Factors (6%) of Outflows Cash Flows Factors (10%) of Outflows

Year 14 Down Payment 50,000

15 146,250 0.943 137,914 140,438 0.909 127,658

16 146,250 0.890 130,163 142,567 0.826 117,760

17 146,250 0.840 122,850 144,823 0.751 108,762

18 146,250 0.792 115,830 147,215 0.683 100,548

19 146,250 0.747 109,249 149,750 0.621 92,995

Cash buyout 50,000 0.747 37,350653,355 597,723

Leasing Purchasing

Custom Snowboards Inc. Lease vs. Buy Decision

Payments

Lease vs. Purchase Comparison of Cash Flows

Analysis of Extended Payment Options for Procurement of Plant & Equipment

After-tax Cash Flow if Purchased

Leasing Interest and Principal Calculations


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Custom Snowboards European SnowFun

Earnings Available for Common Stock 196,876 60,118

# of shares of common stock outstanding 200,000 300,000Earnings per share 0.98 0.20

Market price per share $1.08 $2.40

Price/Earnings ratio 1.1 12.0

Expected EPS

Before Merger After Merger

Custom Snowboards 0.98 1.18 Expected EPS based on efficiencies

European Snowboarding 0.20 from combined operations.

10% Present Present

Cash Inflows Value factor ValueYear 15 113,453 0.909 103,129

Year 16 155,331 0.826 128,303

Year 17 205,894 0.751 154,626

Year 18 250,257 0.683 170,926 Offer/share: 2.40

Year 19 282,670 0.621 175,538

Total 1,007,605 732,522 Offer Price: 720,000

CONSIDER A MERGER

Earnings per Share

CONSIDER AN ACQUISITION

Net Present Value of European SnowFun Project Cash Flows

Projections based on Year 15

budget and European Year 15forecast.

Financial Data for Custom Snowboards Inc. and European Snowboarding


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Item Activity CostPool

Cost Driver Cost DriverQuantity

Pool Rate Product Line

Cost Driver

Quantity for

Product Line

Activity Cost

for Product

Line

Product Line

Production

Volume

Activity Cost

per Unit of

Product

Factory 186,200 Setups 9,500 20 Regular 125 2,442 37,377 0.07

Setups Personalized 9,375 183,758 9,344 19.67

186,200

Quality 315,800 QC Inspections 1,986 159 Regular 93 14,862 37,377 0.40

Control Personalized 1,892 300,938 9,344 32.21

315,800

Engineering 142,000 Engineering 140 1,013 Regular 37 37,867 37,377 1.01Service Personalized 103 104,133 9,344 11.14

142,000

Product 312,767 Forklift Service 841 372 Regular 374 139,010 37,377 3.72

Movements Personalized 467 173,757 9,344 18.60

312,767

Packaging &

Shipping

332,588 Packaging 46,721 7 Regular

37,377

266,072 315,800 0.84

Personalized 9,344 66,516 315,800 0.21

332,588

$ 1,289,355

37,377 Regular Snowboard Production

9,344 Personalized Paint Production.

1,403,030$ Total Applied Overhead

Minneapolis Manufacturing - Overhead Analysis Traditional vs. ABC

Overhead allocated to Activity Cost Pools


Miscellaneous Data

Five overhead items with identified costs


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Summary:

Traditional ABC Traditional ABC

Direct Material 1,177,376 1,177,376 490,560 490,560

Direct Labor 2,197,768 2,197,768 686,784 686,784

Total direct cost of materials and labor 3,375,143 3,375,143 1,177,344 1,177,344

Manufacturing Overhead (ABC) Traditional 1,068,982 334,048 1,403,030Factory Setups 2,442 183,758

Quality Control 14,862 300,938

Engineering Services 37,867 104,133

Product Movements 139,010 173,757

Packaging and Shipping 266,072 66,516

Overhead cost unallocated to activity cost pools 86,610 27,065 113675

Total ABC Overhead Cost ABC 546,863 856,167 1,403,030

Total Product cost 4,444,125 3,922,006 1,511,392 2,033,511

Unit Cost Comparisons:

Regular

Unit Cost - Traditional 119

Unit Cost - Activity Based 105

Personalized

Unit Cost - Traditional 162

Unit Cost - Activity Based 218

Regular Personalized

JET Task 5 Custom Snowboards Inc Financial Data Evaluation Notes (1012) (1)

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Transcript of JET Task 5 Custom Snowboards Inc Financial Data Evaluation Notes (1012) (1)