1. Purifiedspring Inc.
P 2
P 5
P 6
P 8
P 11
■ Gross Profit
■ Operating Income
■ Working Capital
■ AR Turnover
■ Inventory Turnover
■ Current Ratio
■ Quick Ratio
■ Debt-to-Equity Ratio
■ Book Value Per Share
■ Earnings Per Share
■ Gross Profit Ratio
■ Operating Margin
■ Return on Equity
■ Price Earnings Ratio
P 18
P 22
P 25
P 27
P 35
Journal Entry List …………………………………………………………………
Chart of T-accounts ……………………………………………………………..
Business Analysis …………………………………………………………………
Ratio Analysis ……………………………………………………………………..
Projected Income Statement for 2015 ………………………………….
Actual vs. Predicted Earnings Per Share Evaluation ……………….
Statement of Cash Flows for 2013 and 2014 …………..
Brief Contents
Financial Statements:
Income Statement …………...……….………………………….
Company Introduction and Overview ………………………………....
Balance Sheet ……..…………………………………………….…..
3. Purifiedspring Inc.
2
Introduction
123 South State St. Salt Lake City, UT 84111.
(801) 708-1146 * psaom@yahoo.com
Purifiedspring Incorporation was founded in 2011 by Mary Canapi, Phuc Le, and Piseth Saom.
These three founders met each other in a business class at the Salt Lake Community College in Salt Lake
City, UT. They all graduated from the Salt Lake Community College and transferred to the University of
Utah at the same time. Miss Canapi majored in Marketing; Ms. Le majored in Accounting; Mr. Saom majored
in Management. While attending the University of Utah, all three founders had a similar imagination of
improving drinking water quality in UT; therefore, they decided to establish Purifiedspring together.
Company History
“We achieve our customer satisfaction by providing our customers with quality products and on-time
delivery. And we also continue to improve our quality management.”
Mission Statement
Purifiedspring Incorporation is a new and fast growing business that sells water coolers to
various types of consumers includes residential customers, commercial businesses and retail stores
around the United States. Purifiedspring offers multiple types of water coolers that are suitable for our
customers’ needs, budget, tastes and styles. Furthermore, all of our customers are provided with different
system options to choose from; either the regular water coolers (require a 5-gallon artesian bottle) or the
replaceable dispenser cooler systems, which require the dispenser to be replaced regularly. The
replaceable dispenser cooler systems also require a one-time professional installation, which is provided
and recommended by Purifiedspring. Purifiedspring Incorporation only provides customers with high
quality products and professional services because Customer Satisfaction is the top priority of our
company.
Company Overview
4. Purifiedspring Inc.
Piseth Saom (CEO)
3
Mary Rae Anne Canapi (COO)
Purifiedspring’s goal is to build long term relationship with our customers by providing our
customers with quality products, satisfaction, honesty and well-trained Customer Service Representatives.
We continue to cooperate with our shareholders, business partners and investors by increasing efficient
business performance to generate a higher return for their investment in company. We also would like to
become the first company to provide quality water cooler systems to American families and communities
around the country.
Goals and Objectives
Phuc Le (CFO)
6. Purifiedspring Inc.
2014 2013 2012
4,158,400$ 228,000$ 2,500,000$
30,135$ -$ -$
4,188,535$ 2,280,000$ 2,500,000$
(2,536,250)$ (850,000)$ (780,000)$
1,652,285$ 1,430,000$ 1,720,000$
47,942$ 23,000$ 25,000$
4,042$ -$ -$
212,505$ 60,750$ 45,000$
684,200$ 500,000$ 500,000$
166,583$ 23,905$ 21,097$
26,800$ 6,000$ 5,000$
59,675$ 18,009$ 17,080$
Fuel 11,900$ 2,900$ 1,400$
54,000$ 37,050$ 37,500$
1,058,000$ 565,000$ 785,000$
(2,325,647)$ (1,236,614)$ (1,437,077)$
(673,362)$ 193,386$ 282,923$
1,155,000$ -$ (85,100)$
88,145$ 23,676$ 21,574$
(17,428)$ -$ -$
(85,500)$ (56,250)$ (56,250)$
(14,000)$ -$
1,126,217$ (32,574)$ (119,776)$
452,855$ 160,812$ 163,147$
5
Other Income And Expense
Gain (Loss) on Sale of Assets
Unrealized Holding on Loss
Purifiedspring Inc.
Income Statement
For the year ended December 31, 2014, 2013 and 2012
Depreciation
Insurance
Cost of Goods Sold
Gross Profit (Loss):
Advertising
Patent Amortization
Bad Debts
Expenses From Operations
Revenue
Cost of Goods Sold
Sales revenue
Service revenue
Net Sales:
Net Operating Income:
Total Expenses:
Office Supplies
Rent
Utilities
Wages
Interest
Total Other Income:
Net Income (Loss):
Interest Income
Bond Interest
8. Purifiedspring Inc.
Stockholders' Equity
Common Stock 1,062,500$ 1,000,000$ 1,000,000$
Additional Paid-In Capital 2,711,906$ 1,824,406$ 1,824,406$
Treasury Stock (487,500)$ -$ -$
Contributed Capital 532,000$ 500,000$ 500,000$
Retained Earnings 1,191,241$ 1,722,386$ 1,716,574$
5,010,147$ 5,046,792$ 5,040,980$
10,646,575$ 6,936,792$ 7,028,980$
7
Total Liabilities & Stockholders' Equity:
Total Stockholders' Equity:
9. Purifiedspring Inc.
2014 2013
Net income 452,855$ 160,812$
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation expense 684,200$ 500,000$
Amortization of bond discount 2,928$ -$
Amortization expense 4,042$ -$
Unrealized holding on loss 14,000$ -$
Gain from sold assets (1,155,000)$ -$
Changes in Assets and Liabilities:
Increase in receivables related to sales (1,107,315)$ (10,000)$
Increase in prepaid rent (45,325)$ 5,932$
Increase in prepaid advertising (4,358)$ -$
Increase in supplies (2,200)$ 1,880$
Decrease in inventory 259,875$ (200,000)$
Increase in accounts payable 581,781$ (120,000)$
Increase in short-term notes payable 510,000$ -$
Increase in prepaid insurance (224,417)$ 9,109$
Increase in interest payable 2,125$ -$
Decrease in wages payable (1,000)$ 2,000$
Increase in deferred revenue 746,865$ -$
Increase in bond interest payable 14,500$ -$
Increase in interest receivable (64,469)$ (2,102)$
Net cash provided by operating activities: 669,087$ 347,631$
Cash flows from investing activities:
Purchase of marketable securities (49,000)$ (60,000)$
Purchase of land (990,000)$ -$
Purchase on long-term notes (285,000)$
Proceeds from sales of land 2,000,000$ -$
Purchase truck, office furniture & equipment (337,000)$
Purchase patent (97,000)$ -$
Proceeds from sales of equipment 760,000$ -$
Net cash provided by investing activities: 1,287,000$ (345,000)$
8
Cash Flows from Operating Activities:
Purifiedspring Inc.
Statement of Cash Flows
For the year ended December 31, 2014 and 2013
10. Purifiedspring Inc.
Cash flows from financing activities:
Payment of dividends (155,000)$ (135,000)$
Payment on long-term notes (46,000)$
Proceeds from issuing of bond 968,229$ -$
Repurchase of common stock (487,500)$ -$
Proceeds from issuance of common stock 950,000$ -$
Proceeds from owner's contribution 32,000$ -$
Proceeds from long-term notes 138,000$
Net cash provided by financing activities: 1,399,729$ (135,000)$
Net increase in cash and cash equivalents: 3,355,816$ (132,369)$
Cash and cash equivalents at beginning: 525,710$ 658,079$
Cash and cash equivalents at ending: 3,881,526$ 525,710$
9
12. Purifiedspring Inc.
2012 2013 2014
1,720,000$ 1,430,000$ 1,652,285$
226,673$ 137,136$ (776,290)$
11
Even though the 2014's gross profit was lower than the 2012's gross profit by a small margin, the
increase of the 2014's gross profit still indicates that Purifiedspring Inc. has the ability to seek a
better way to earn profit.
Gross Profit
Operating Income
Ratio Analysis
Purifiedspring Inc.
DESCRIPTION
Operating Income = (Gross Profit - Operating
Expense)
The 2014's Operating Income was slightly lower than the previous years', but we still have a very
strong confidence that Purifiedspring will use this negative impact effectively to booth its
performance to generate more income for the following years.
Gross Profit = (Revenue - COGS)
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
2012 2013 2014
$1,720,000
$1,430,000
$1,652,285
Gross Profit
$226,673
$137,136
$(776,290)
$(1,000,000)
$(800,000)
$(600,000)
$(400,000)
$(200,000)
$-
$200,000
$400,000
2012 2013 2014
Operating Income
13. Purifiedspring Inc.
1,340,980$ 1,561,792$ 6,780,817$
4.76 4.65 3.84
12
Working Capital
AR Turnover
AR turnover means how quickly a company can collect cash from customer for its product sales on
credit. For 2014, Purifiedspring took about 95 days to collect cash from customers who have
purchased its products on credit.
Working Capital = (Total Current Assets - Total
Current Liabilities)
Purifiedsprings's Working Capital has been improving exponentially, which informs both current
and potential investors that our company has a strong ability to pay off its short-term debts within
a one year period.
AR Turnover = (Net Sales/Average AR)
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
2012 2013 2014
$1,340,980 $1,561,792
$6,780,817
Working Capital
4.76 4.65
3.84
1.01 0.97
3.00
0
1
2
3
4
5
6
7
8
2012 2013 2014
AR Turnover Inventory Turnover
14. Purifiedspring Inc.
1.01 0.97 3.00
2.82 3.44 2.04
1.60 1.53 1.69
13
Current Ratio
Quick Ratio
Inventory Turnover
Inventory Turnover tells how quickly a company is able to sell its inventory to customers during
the year of operation. In 2014, Purifiedspring sold its inventory two times faster than the previous
years' sales.
Quick Ratio = (Cash+Short-Term investment +
Receivable) / Total Current Liabilities
Quick Ratio is similar to current ratio; however, the quick ratio is more efficient than the current
ratio. High quick ratio shows a company's ability to pay its short-term debts within three months.
As a matter of fact, Purifiedspring's quick ratio was improving better in 2014.
Current Ratio indicates company's ability to pay short-term debts without bringing the whole
corporation down. Higher ratio means lower risk. Based on our current ratio, Purifiedspring is
actually standing in a good position, even though it's a little lower than the 2013's.
Current Ratio = (Total Current Assets / Total
Current Liabilities)
Inventory Turnover = (COGS / Average
Inventory)
0
0.5
1
1.5
2
2.5
3
3.5
2012 2013 2014
2.82
3.44
2.04
1.60 1.53
1.69
Current Ratio Quick Ratio
15. Purifiedspring Inc.
0.39 0.37 1.13
1.26 1.26 1.22
0.04 0.04 0.11
14
Debt-To-Equity Ratio indicates the proportion of investors and shareholders within the company.
For instance, in 2014, Purifiedspring issued bonds worth of $1,000,000 to different investors;
therefore, we will contribute $1.13 to every dollar contributed by the investors.
Debt-To-Equity Ratio
EPS = (Net Income - Preferred
Dividends)/Average Numbers of Common
Shares
In 2014, each common share earned $0.22, which was higher than 2013 and 2012.
Debt-To-Equity Ratio = (Total Liabilities/Total
Equity)
Book Value Per Share = (Total Equity - Preferred
Stock)/ Numbers of Common Stock
Purifiedspring's stocks during 2014 had a book value of $1.22, which means that each shareholder
would get $1.22 per share if our company had gone liquidated.
Book Value Per Share
EPS
0
0.5
1
1.5
2012 2013 2014
0.39 0.37
1.13
1.26 1.26 1.22
Debt Equity Ratio Book Value per Share
0 0.02 0.04 0.06 0.08 0.1 0.12
2012
2013
2014
0.04
0.04
0.11
EPS
16. Purifiedspring Inc.
0.69 0.63 0.39
0.11 0.08 -0.16
0.03 0.03 0.09
15
Gross Profit Ratio = (Gross Profit/Sales)
Gross Profit Ratio
Return on equity indicates how well our company can return profit to our investors. High growing
ROE attracts more investors.
In 2014, for every dollar that our company invested, we earned $0.39 as a profit from the product
sales. However, looking at the prevous years' ratio, the profit from sales has been declined
gradually, but we are still looking to find a better way to cut production cost and to increase sales
profit for next year.
Operating Margin = (Operating Income / Net
Sales)
Due to the negative operating income in 2014, Purifiedspring has experienced a negative
operating margin, which indicates a much operating expense over operating income; for every
dollar we sold in 2014, we lost $0.16.
Return On Equity = (Net Income - Preferred
Dividends)/Stockholders' Equity
Operating Margin
Return On Equity
0.11 0.08
-0.16
0.69
0.63
0.39
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
2012 2013 2014
Operating Margin Gross Profit Ratio
0 0.02 0.04 0.06 0.08 0.1
2012
2013
2014
0.03
0.03
0.09
Return on Equity
17. Purifiedspring Inc.
71.10 94.52 45.27
16
Price-Earnings Ratio = (Market Price Per Share /
Earning Per Share)
Price-Earnings Ratio means how much investors are willing to pay per dollar of earnings.
Purifiedspring has a PE ratio of $45 in 2014. Although PE ratio was lower than the previous years,
but with a large market price, our company will continue to provide a great market condition to
our investors.
Price-Earnings Ratio
$71
$95
$45
$-
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
$100.00
2012 2013 2014
Price-Earning Ratio
19. Purifiedspring Inc.
18
In 2014, due to high quality of water coolers associated with a reasonable price,
Purifiedspring produced a great profit of $1.72 million, which is $222,285 more than 2013 (Figure
1). Figure 2 indicates the percentage changes in gross margin. In 2014, our gross margin was
down from 63% to 39% because the manufactures that produced our water coolers increased
their product prices, which also affected our own earning income because we used LIFO method
to calculate our inventory sales. If this trend continues, it may be necessary for our company to
purchase an additional larger warehouse to hold more inventory to limit the increase of product
cost during the year.
BUSINESS ANALYSIS
Since Purifiedspring Inc. began operating four years ago, Customer Satisfaction has
always been important to our company's goal. One of our main goals is to make sure that every
customer receives high quality products as well as great customer care because our profit
depends mostly on our product sales; the more we sell our products the higher our profit will
become. As a result, our market share has been increased from 2013 to 2014, and we are very
confident that our business strategy will continue to increase our gross profit for the coming
years. However, there are more factors involved that relate to the company’s financial health and
stability we should consider. Therefore, as the CEO and managers of Purifiedspring Inc. we need
to carefully analyze all sorts of financial factors before making our final business decision. More
detail on our company's current operation will be explained in greater detail below.
Gross Profit reflects the company's residual profit after selling the products and
deducting the cost associated with the sales. For Purifiedspring, we purchase water coolers from
manufactures and sell them directly to our customers, commercial businesses, and retail stores
around the country.
Firgure 1.
0
500,000
1,000,000
1,500,000
2,000,000
2012 2013 2014
$1,720,000
$1,430,000
$1,652,285
Gross Profit
20. Purifiedspring Inc.
19
Figure 2.
Figure 3.
Current Ratio (Figure 3) explains the company's relative liquidity by comparing the
current assets against the current liabilities. The higher the ratio we hold, the better ability we
have to pay our current debts on time. For Purifiedspring the ratio for 2014 is 2.04, which reflects
the reduction that we have experienced. Even though our current ratio dropped during 2014, our
company still has the ability to pay off our current debts if needed. Figure 3 shows the changes
during the past three years.
0%
10%
20%
30%
40%
50%
60%
70%
2012 2013 2014
69% 63%
39%
Gross Margin
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
2012 2013 2014
2.82
3.44
2.04
Current Ratio
21. Purifiedspring Inc.
20
Although Purifiedspring has been experiencing a stable business growth and a healthy
business environment for the last three years, we are still trying to discover a better way to
improve our business strategy so that we can increase our profit and to help our company grow
larger financially and geologically.
Figure 4.
Although our 2014 operating income was negative (-$776,290) due to an increase in
inventory cost and operating expenses compares to 2013 and 2012, Purifiedspring still has a net
income of $452,855, which places our company in a stable stage financially. However, our Gain on
Sales and Interest Income (2014 Financial Statement) contributed about 27% of the total income.
If we did not sell our land and equipment during 2014, our company would have experienced a
loss on income. From this negative experience, we will seek a better way to secure our budget and
operating income, and also reduce our expenses so that we will not fall into a financial loss for the
upcoming years.
$226,673
$137,136
$(776,290)
$(1,000,000)
$(800,000)
$(600,000)
$(400,000)
$(200,000)
$-
$200,000
$400,000
2012 2013 2014
Operating Income
24. Purifiedspring Inc.
2015 % 2014 % 2013 % 2012 %
COGS 1,510,503 43.16% 2,536,250 60.99% 850,000 37.28% 780,000 31.20%
23
Since we are not planning to sell any property in 2015, we are not expecting to get any gain
or loss on property sales as we did in 2014. Also, we will still be able to collect some cash from
interest revenue and deferred revenue, which we have signed and will be collected in 2015. There
is some specific financial information that we could find directly from the 2014 financial
statement, such as: insurance expense, rent expense, depreciation expense, amortization expense,
bond interest and interest expense. We also assume that wages expense will remain the same for
2015, except $190,000 will be adjusted and paid to a new hired regional manager, who will begin
working in March 2015. Based on our estimated income for 2015, Purifiedspring Inc. will continue
to be able to generate more profit.
Projected Percentage
Purifiedspring Inc.
2015 Projected Income Statement Explanation
Figure 5.
Based on partial 2015 information that has been given to us, we are able to project our
income for the upcoming year using vertical analysis. The forecast sales revenue is projected to
equal to $3,500,000. However, in order to be able to calculate the projected income for 2015, first,
we have to get the percentages for the previous years' income and expense accounts; in our case,
we used the 2014, 2013, and 2012 accounts. To get the percentage of each account, we simply
divide each account (from the income statement) by the net sales of that particular year. After the
percentages of the previous years' accounts have been appropriately calculated, then we use the
average of those percentages to calculate for the projected income by timing them with the
forecast net sales. Some accounts require a more complex calculation to get the right results.
Figure 5. will demonstrate how percentages are calculated.
26. Purifiedspring Inc.
Predicted Actual
0.09 0.11
25
Although our actual 2014 EPS was a little higher than what the analysts have
predicted, we still want to continue to increase our profit and EPS for our shareholders much
higher to attract more investors who wish to do business with us. One of Purifiedspring's main
goals is to increase its own profit as well as its shareholders'. We need more investment to
extend our market shares and boundary; therefore, as the CEO of Purifiedspring Inc. I promise
to use my knowledge, skills and experience to direct this great company in the right direction;
the direction that everyone will be a part of, and it is also a win-win business for our company
and all of our customers and investors.
Purifiedspring may still be young in the open market, but our task, goals and marketing
strategy are enormous. We want to continue to earn trust from our employees, investors and
customers as much we can. In order to achieve those goals, we have to dedicate our honesty,
care and support to those important people, and make sure that their concerns about our
products and services are taken care of in an appropriate time frame.
Based on our 2014 EPS report, the actual EPS is slightly higher than the predicted EPS
at the close of 2014 and other previous years. Because of our efficient management and higher
customer satisfaction and support, Purifiedspring Inc. was able to increase its product sales and
services significantly, which has helped our company increase more assets and yielded a high
EPS for our shareholders than the previous years combined.
Furthermore, our product sales in 2014 increased rapidly. In fact, comparing to 2012
and 2013 sales, our company was able to double its net sales, which also helped increase our
company's EPS. Moreover, another huge amount of income, which Purifiedspring was able to
receive, came from the sales of assets which were worth of $1,155,000. During 2014, our
company also issued 250,000 additional shares to the public, which could have lowered our
EPS; however, because we were able to repurchase 150,000 shares back from our investors, the
additional issued shares did not post any significant changes to our average common shares.
Actual vs. Predicted Earnings Per Share Evaluation
Year 2014
41. Purifiedspring Inc.
22 17,428$ 40 14,000$
17,428$ 14,000$
28 305,000$ 39 8,000$
24 850,000$ 44 56,250$
1,155,000$ 10 21,250$
85,500$
8 47,942$
47,942$
40
Advertising Expense
Bond Interest Expense
Interest ExpenseGain on sale
Unrealized Holding on Gain (Loss)
42. Purifiedspring Inc.
Figure 2.
2014 2013 2012
0.40$ 0.63$ 0.69$
Interest income and Gain (Loss) on Sales Sales Rev
1,126,216.72$ 4,188,535.00$
27%
Data Analysis Calculation
