2. 2
Table of Contents
Company Introduction and Overview…………………………..03
Income Statement………………………………………………………06
Balance Sheet…………………………………………………………….07
Statement of Cash Flows……………………………………………..09
Ratio Analysis…………………………………………………………….11
Business Analysis……………………………………………………….26
Projected Income Statement for 2020………………………….30
Actual vs Predicted Earnings per Share Evaluation……….33
Journal Entry List………………………………………………………36
Chart of T-Accounts……………………………………………………40
Depreciation Schedules……………………………………………...44
Inventory Tracking Schedule……………………………………...45
Patent Amortization Schedule……………………………………..44
Bond Amortization Schedule……………………………………….45
Vertical Analysis…………………………………………………………46
4. 4
ColdFront was formed in Utah on January 1, 2016 to help the people here combat
the harsh winters with an array of different cold weather products. We specialize in
winter car accessories including: tire chain alternatives, windshield ice protectors,
battery warmers, snow scrapers, portable snow shovels for the car, and de-icing
formulas.
Over the past few years, we have become profitable, and have decided to expand
our business to the surrounding states of Colorado and Idaho. In this expansion, we
have set ourselves up to make much greater profits in the coming years.
On January 1, 2017, our company went public, and started trading on the NYSE.
This has helped us to become recognizable here in the Mountain West, and also has
helped to boost sales across the nation and even worldwide. Most of our business
comes from our brick and mortar stores set up strategically throughout the Mountain
West, but we also sell online through a variety of retailers. Our innovative formulas and
products have helped people who live in cold environments endure the harsh side
effects that come along with that lifestyle.
8. 8
Retained Earnings $1,359,523 $1,722,385 $1,716,574
Stockholder's Equity $5,113,929 $5,046,791 $5,040,980
Total Liabilities & SE $10,558,938 $6,936,791 $7,028,980
9. 9
Statement of Cash Flows
Cash Flows from Operating Activities: 2019
Net Income $618,737
Depreciation Expense $600,800
Amortization Expense $3,292
Discount on bond $27,089
Unrealized Gain $(18,000)
Gain on Sale $(1,160,000)
Increase in accounts receivable $(1,223,404)
Increase in interest receivable $(59,269)
Increase in prepaid insurance $(202,583)
Increase in prepaid ad $(3,542)
Increase in prepaid rent $(58,083)
Increase in office supplies $(10,600)
Decrease in inventory $255,050
Increase/Decrease in accounts payable $562,388
Increase in wages payable $6,000
Increase in deferred revenue $560,625
Increase in bond interest payable $18,485
Net Cash from Operating Activities $(83,015)
Cash Flows from Investing Activities:
Purchase of a truck $(260,000)
Cash received from sale of equipment $810,000
Purchase of land $(470,000)
Cash received from sale of land $2,000,000
Purchase of Office Supplies $(27,000)
Purchase of Office Furniture $(92,000)
Purchased Marketable Security $(49,000)
Patent Purchase $(79,000)
Net Cash Used for Investing Activities $1,833,000
Cash Flows from Financing Activities:
Issued long-term note payable $145,000
Paid long-term note payable $(47,000)
Cash received from issuing bond payable $972,911
Cash received from issuance of common stock $950,000
Treasury Stock $(520,000)
Paid dividend $(155,000)
Net Cash from Financing Activities $1,345,911
Net increase in cash $3,095,896
Cash, Beginning of year 1/1/2019 $525,710
Cash, End of year 12/31/2019 $3,621,517
10. 10
Net Cash from Operating Activities 2018
Net Income $160,812
Depreciation Expense $500,000
Decrease in accounts receivable $70,000
Increase in interest receivable $(2,102)
Allowance for Bad Debt $(80,000)
Decrease in prepaid insurance $9,109
Decrease in prepaid rent $5,932
Decrease in office supplies $1,880
Decrease in inventory $(200,000)
Increase/Decrease in accounts payable $(120,000)
Increase in wages payable $2,000
Net Cash from Operating Activities $347,631
Cash Flows from Investing Activities :
Long-term Note Receivable $(285,000)
Marketable Securities $(60,000)
Net Cash Used for Investing Activities $(345,000)
Cash Flows from Financing Activities:
Dividends $(135,001)
Net Cash from Financing Activities $(135,001)
Net cash $(132,370)
Cash, Beginning of year $658,079
Cash, End of year $525,710
12. 12
Earnings Per Share:
Net Income - Preferred Dividends
Average Common Shares Outstanding
= $0.15
EPS gives you the dollar amount that we could distribute for each common stock share that is
outstanding each year. This calculation also shows how profitable we are to our shareholders. Based
on our 2019 net income, we had an EPS of $ 0.15, which is significantly higher than both of the
previous years. This means that we would be able to distribute $0.15 for each one of our outstanding
stocks.
Year Earnings Per Share
2017 0.04
2018 0.04
2019 0.15
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
2017 2018 2019
Earnings Per Share
Earnings Per Share
618,737 - 0
((4000000+4090000)/2)
13. 13
Price-earnings Ratio:
Market Value per Share
Earnings per Share
= $32.69
The Price-earnings Ratio tells investors how many dollars they should expect to put into a company to
receive 1 dollar of our earnings each year. The P/E Ratio for 2019 is $32.69, which is significantly
lower than the previous years. This could show potential investors that our growth is slowing down
from what it was at in the past.
Year
Price Earnings
Ratio
2017 $71.10
2018 $94.52
2019 $32.69
$-
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
$100.00
2017 2018
Price Earnings Ratio
Price Earnings Ratio
5
0.15
14. 14
Return on Equity:
Net Income
Average Equity
= 0.12
ROE measures how much money we can make as a company with the money that shareholders have
given to us. Our 2019 ROE is 0.12, which means that for every dollar invested into our company, there
is a return of $0.12 in excess of the dollar invested. Our 2019 ROE is 4 times larger than our 2017 and
2018 ROEs, which indicates that we have quadrupled our investor’s returns this year.
Year Return on Equity
2017 0.03
2018 0.03
2019 0.12
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
2017 2018
Return on Equity
Return on Equity
618,737
(5,113,929 + 5,046,791)/2
15. 15
Working Capital:
Current Assets - Current Liabilities
6,667,029 – 3,097,009 = 3,570,020
Working capital indicates whether a company has enough liquid assets to cover their debts that are
due within the next year. Our 2019 working capital was $3,570,020. This means that we have
$3,570,020 in excess of what we owe other people within the next year. This money can then be put to
use in many other facets.
Year Working Capital
2017 $1,340,980.00
2018 $1,561,792.00
2019 $3,570,020.56
$0.00
$500,000.00
$1,000,000.00
$1,500,000.00
$2,000,000.00
$2,500,000.00
$3,000,000.00
$3,500,000.00
$4,000,000.00
2017 2018 2019
Working Capital
Working Capital
16. 16
Current Ratio:
Current Assets
Current Liabilities
= 2.15
The Current Ratio displays how many times a company would be able to pay off its debt under one
year, with the assets that they have on hand, which they are quickly able to liquefy. Our Current Ratio
for 2019 was 2.14, which indicates that we would be able to cover all of our debt which is under one
year 2.14 times with what we currently have and are able to liquefy quickly.
Year Current Ratio
2017 2.82
2018 3.44
2019 2.15
0
0.5
1
1.5
2
2.5
3
3.5
4
2017 2018 2019
Current Ratio
Current Ratio
6,667,029
3,097,009
17. 17
Quick Ratio:
Cash + Short Term Investments + Receivables
Current Liabilities
= 1.82
The Quick Ratio measures how many times over a company is able to cover its short term debt, with
the assets that they are able to sell off quickly. This is why with the inventory is left out of the ratio,
because a company possibly wouldn’t be able to get rid of inventory quickly. For this reason, the Quick
Ratio may be more accurate than the Current Ratio. Our 2019 Quick Ratio is 1.82. This means that for
every dollar of short term liabilities that we have, we have $1.82 of liquid assets that we are able to
cover it with.
Year Quick Ratio
2017 1.62
2018 1.65
2019 1.82
1.5
1.55
1.6
1.65
1.7
1.75
1.8
1.85
2017 2018 2019
Quick Ratio
Quick Ratio
3,621,517 + 142,000 + 1,878,868
3,097,009
18. 18
AR Turnover:
Net sales
Average Accounts Receivable
= 3.55
The A/R Turnover Ratio determines how effective our company is at collecting the debt that is owed
to us. The ratio determines how many times per year Accounts Receivable is collected. By looking at
this, we are able to see if we are efficient in receiving the money that we have earned, but not yet
collected from customers. Our 2019 ratio is 3.55, which means that we collected A/R 3.55 times last
year, or just under once per quarter. This is down from the previous two years, which indicates that
we were less efficient at collecting A/R in a timely manner than the other two years.
Year AR Turnover
2017 4.76
2018 4.65
2019 3.55
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
2017 2018 2019
AR Turnover
AR Turnover
4,143,225
(455000 + 1,878,868)/2
19. 19
Inventory Turnover:
Cost of Goods Sold
Average Inventory
= 2.94
Inventory Turnover determines the company’s ability to sell inventory that we have, and how
efficiently we are able to do it. Our 2019 Inventory Turnover for 2019 was 2.94, which indicates that
we turned over the inventory that we had, and replaced it 2.94 times last year. This is a fairly low
number, but is almost 3 times higher than what it was in the past, which shows that we have become
more efficient in selling our product.
Year Inventory Turnover
2017 1.01
2018 0.97
2019 2.94
0
0.5
1
1.5
2
2.5
3
3.5
2017 2018 2019
Inventory Turnover
Inventory Turnover
2,493,425
(975,000 + 719,950)/2
20. 20
Gross Profit:
Net Sales - COGS
4,143,225- 2,493,425 = 1,649,800
Gross Profit evaluates how efficient our company is at producing our product. If the Net Sales are
greater than the COGS, then that means that we are selling our product at a higher price than it costs
to make it. Our 2019 Gross Profit
Year Gross Profit
2017 $1,720,000.00
2018 $1,430,000.00
2019 $1,649,800.00
$0.00
$200,000.00
$400,000.00
$600,000.00
$800,000.00
$1,000,000.00
$1,200,000.00
$1,400,000.00
$1,600,000.00
$1,800,000.00
$2,000,000.00
2017 2018 2019
Gross Pro?it
Gross ProMit
21. 21
Gross Profit Ratio:
Gross Profit
Net Sales
= .40
The Gross Profit Ratio calculates what percentage of revenues is left over after the production costs
are taken out. Our 2019 Gross Profit Ratio shows that we have 40% of revenues left over to cover
other activities.
Year Gross Profit Ratio
2017 0.69
2018 0.63
2019 0.4
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2017 2018 2019
Gross Pro?it Ratio
Gross ProMit Ratio
1,649,800
4,143,225
22. 22
Operating Income:
Gross Profit – Total Operating Expenses
1,649,800 – 2,209,633 = (559,833)
Our negative Operating Income demonstrates that as a company, we had more expenses than we had
income coming in in 2019. The way to fix this would be to cut down on expenses, increase sales, or
both. By doing this, we would be able to turn a profit in the upcoming years.
Year Operating Income
2017 $282,923.00
2018 $193,386.00
2019 $(559,832.65)
$(700,000.00)
$(600,000.00)
$(500,000.00)
$(400,000.00)
$(300,000.00)
$(200,000.00)
$(100,000.00)
$-
$100,000.00
$200,000.00
$300,000.00
$400,000.00
2017 2018 2019
Operating Income
Operating Income
23. 23
Operating Margin:
Income From Operations
Net Sales
= -0.14
The Operating Margin shows the percent of money that we made from selling our product after taking
out the expenses incurred. Like the Operating Income, this percent is a way to reflect how profitable
our company is. Our 2019 Operating Margin is -14%, which reflects our Operating Income, which was
also unprofitable.
Year Operating Margin
2017 0.11
2018 0.08
2019 -0.14
-0.2
-0.15
-0.1
-0.05
0
0.05
0.1
0.15
2017 2018 2019
Operating Margin
Operating Margin
-559,833
4,143,225
24. 24
Debt-to-equity Ratio:
Total Liabilities
Total Equity
= 1.06
The Debt-to-equity Ratio evaluates how much debt we took on versus how much equity we raised to
finance our company. Our 2019 ratio was 1.06, which indicates that we took on 6% more debt than we
raised through means of equity. Our large increase in ratio from the past two years shows that we
have taken on a lot more debt this year than in previous years.
Year Debt-to-equity Ratio
2017 0.39
2018 0.37
2019 1.06
0
0.2
0.4
0.6
0.8
1
1.2
2017 2018 2019
Debt-to-equity Ratio
Debt-to-equity Ratio
5,445,009
5,113,929
25. 25
Book Value Per Share:
= 1.25
The Book Value Per Share indicates how much our company is worth per share to our shareholders if
we were to liquidate the company today. It is a way to measure what the company is worth per share
of stock outstanding. Our value per share for 2019 is 1.25, which shows that our company is worth
$1.25 per share.
Year
Book Value Per
Share
2017 1.26
2018 1.26
2019 1.25
1.244
1.246
1.248
1.25
1.252
1.254
1.256
1.258
1.26
1.262
2017 2018 2019
Book Value Per Share
Book Value Per Share
Total Equity - Preferred Equity
Total Outstanding Shares
5,113,929 - 0
4,090,000
27. 27
Income:
In 2019, we were able to double our sales from 2018. We did, however, also increase our Cost of
Goods Sold by 30 %. This was a weak point for us this year, because even though we had higher sales,
our end Operating Income was negative, when it was positive in the previous years. Also, even though
our Net Income was vastly higher than previous years, this is because we had a massive gain on sale,
which contributed $1.16 million that we didn’t have in 2017 and 2018. This was reflected in our
Earnings Per Share and Return on Equity. EPS was 3 times higher, and ROE was 4 times higher than
previous years. Overall, I feel like we are on the right track by increasing sales, but in 2020, we need
to figure out a way to cut costs so that we are more profitable for our shareholders.
Sales, Net, 76.67%
Interest Income,
1.53%
Gain on Sale, 21.46%
Unrealized Gain,
0.33%
28. 28
Expenses:
This year, we saw a large $1 million increase in expenses. This is, however, proportionate to the
growth that we saw this year. Most of our expenses are right on par with what they were at last year as
a percentage of income. We had a large increase in Bad Debt Expense this year, which was 3% higher
than last year. We could increase our sales a bit more if we can become more efficient in collecting
what customers owe us. Naturally, our Wages Expense was by far our highest expense coming in at
$1,025,000, and making up almost half of our total expenses. As an expanding company, this makes
sense, because we need to have the adequate number of employees to keep up with our huge increase
in sales from the previous years. As the company keeps growing, I expect this number to keep rising
until we reach an economy of scale within our company.
Cost of Goods Sold
52.10%
Wages Expense
21.42%
Utility
Expense
1.17%
Insurance
Expense
3.39%
Rent Expense
0.50%
Fuel
Expense
0.20%
OfMice
Supplies
Expense
0.34%
Advertising
Expense
0.81%
Bad Debt
Expense
5.33%
Depreciation Expense
12.55%
Amortization Expense
0.07%
Bond Interest Expense
0.39%
Interest Expense
1.72%
29. 29
Profit:
In 2019, our Gross Profit went up by 229,800, but our Gross Profit Margin went down by 23%. This is
also tied to the problem that we highlighted above when talking about our Cost of Goods Sold. We
have been steadily declining over the past three years when it comes to Profit Margin, and this is
worrisome to our shareholders. We need to take the steps necessary to become more efficient in 2020
to cut down our COGS, so that we can become more profitable in the future.
Debt and Equity:
As a company in 2019, according to the Debt-to-equity Ratio, we were leveraged with 6% more debt
than equity. We took on a lot more debt this year than in previous years, and this should help us
receive a higher tax break. At first glance, it may seem like a mistake to take on a 70% increase in a
one-year period, but we are able to pay off all of our current liabilities that we have incurred. We have
a Current Ratio of 2.15, which shows that we are able to pay off those liabilities 2.15 times with the
assets that we have on hand. This could, however, become a problem in the future if we have a year
when a large portion of our long-term debt is due, and we continue to have such high COGS mixed
with low sales for the year.
31. 31
2020 2019 2018 2017
Sales, Net $3,500,000 $4,143,225 $2,280,000 $2,500,000
Cost of Goods Sold $1,501,051 $2,493,425 $850,000 $780,000
Gross Profit $1,998,949 $1,649,800 $1,430,000 $1,720,000
Wages Expense $944,065 $1,025,000 $565,000 $785,000
Utility Expense $56,000 $56,000 $37,050 $37,500
Insurance Expense $182,500 $162,417 $23,905 $21,097
Rent Expense $41,000 $23,917 $18,009 $17,080
Fuel Expense $4,784 $9,400 $2,900 $1,400
Office Supplies Expense $10,021 $16,400 $6,000 $5,000
Advertising Expense $46,042 $38,958 $23,000 $25,000
Bad Debt Expense $215,381 $254,964 $60,750 $45,000
Depreciation Expense $658,350 $600,800 $500,000 $500,000
Amortization Expense $7,900 $3,292 $- $-
Bond Interest Expense $18,485 $18,485 $- $-
Total Operating Expenses $2,184,529 $2,209,633 $1,236,614 $1,437,077
Operating Income $(185,580) $(559,833) $193,386 $282,923
Interest Income $70,068 $82,945 $23,676 $21,574
Interest Expense $69,586 $82,375 $(56,250) $(56,250)
Gain on Sale $- $1,160,000 $- $34,900
Loss on sale $- $- $- $(120,000)
Unrealized Gain $- $18,000 $- $-
Total Other Income $139,654 $1,178,570 $(32,574) $(119,776)
Net Income $(45,926) $618,737 $137,136 $163,147
Cost of Goods Sold
We found a 42% correlation between net sales and cost of goods sold averaged over 2017, 2018, and
2019. We then applied the percentage to the projected 2020 sales.
Wage Expense
We calculated wage expenses in a similar manner to cost of goods sold. We found a 27% correlation
between wage expense and net sales. We then multiplied the percentage to our projected 2020 sales.
Utility Expense
Our utility expense stays the same, as we just purchased new land in 2019 and do not want to engage
in any real estate investments in 2020.
Insurance Expense
On November 1, 2019, we purchased insurance for two years building insurance for $365,000. We did
not have any other insurance engagements, so we calculated the 2020 projected insurance expense by
dividing the $365,000 by the two years. This equates to $182,500 for 2020 insurance expense.
Rent Expense
32. 32
On June 1, 2019, we paid $82,000 for the next two years of rent. This equates to $41,000 for 2020
rent expenses.
Fuel Expense
We found a 0.14% correlation between sales and fuel costs. We calculated this by finding the average
sales of 2018 and 2019, divided by the average fuel expense of 2018 and 2019.
Office Supplies Expense
We found a 0.29% correlation between office supplies and sales. We calculated this by finding the
average of the past three years sales and office supplies, multiplying this by our projected sales.
Advertising Expense
On February 1, 2019, we prepaid $42,500 for 1 year of radio advertising. This contract went into
January of 2020, for the amount of $3,542. We plan to renew our contract for radio advertisement in
2020 the same amount, resulting in $46,042.
Bad Debt Expense
We calculated this by dividing the allowance of bad debt by sales in 2019. We expect to collect the
same percent of accounts receivable as 2019.
Depreciation Expense
On December 31, 2019 our depreciation expense was $600,800, we then added our double declining
depreciation of the truck purchased in 2019 and furniture.
Amortization Expense
On August 1, 2019, we obtained a patent and decided to use straight-line amortization. This results in
an amortization expense of $7,900.
Bond Interest Expense
We do not need to issue bonds in 2020, thus our bond interest expense will be the same as 2019,
$18485.
Interest Expense
Interest expense for 2019 was 2%, we took that and applied it for 2020. Since previous years were
counted against net income, we did not take them into consideration.
Interest Income
We calculated this by dividing the 2019 interest income by the net sales resulting in a 2% relationship.
34. 34
= $0.15
For 2016, our predicted annual EPS was supposed to be $0.15. Our actual EPS ended up being right
on the spot at %0.15. We met the goal that was set forth, so our shareholders should be happy about
that. We feel as though we were able to meet this goal, because we were able to increase our sales by a
large amount this year. We weren’t, however, able to pass our goal, because our Cost of Goods Sold
was also increased by a large amount, which set us back. Looking onward towards 2020, we need to
be able to increase Net Sales, while cutting down on Cost of Goods Sold to be able to raise the EPS for
our shareholders.
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
2017 2018 2019
Earnings Per Share
Earnings Per Share
618,737 - 0
((4000000+4090000)/2)