1. Sunset Boards
Financial Review & Recommendations
Kate E. Erickson  Post University  BUS501

2. Sunset Boards
Financial Review & Recommendations
 Agenda
 Purpose of review and company background
 Review Sunset Boards financial statements for 2010 and 2011
 Evaluate company performance based on financial statements
 Discuss company proposal for expansion with focus on cash flow
impacts
 Outline analyst recommendations for future growth

3. Sunset Boards
Purpose of Review
 To analyze the company’s recent financial statements for understanding of
company performance
 To use evaluation of company performance in deciding whether the
company is in a good position for expansion
 To review company proposal and provide recommendations:
 Proposal: Open second storefront in Hawaii; begin supplying products to other
sellers; requires significant financing from outside investors as well as bank loans

4. Sunset Boards
Financial Statements 2010-2011: Income Statement
 The company currently pays 50% in dividends
to owner Tad and other original investors
 Net Income
 2010: $55,243
 2011: $63, 246 – increase of $8,003 YOY
Income Statement
Sales
Cost of goods sold
Selling & administrative
Depreciation
Earnings before interest & taxes
Interest expense
Taxable income
Taxes (20%)
Net Income
2010
$ 321,437
$ 163,849
$ 32,223
$ 46,255
$ 79,110
$ 10,056
$ 69,054
$ 13,811
$ 55,243
2011
$ 391,810
$ 206,886
$ 42,058
$ 52,282
$ 90,584
$ 11,526
$ 79,058
$ 15,812
$ 63,246
Dividends
$ 27,622 $ 31,623
Addition to retained earnings $ 27,622 $ 31,623

5. Sunset Boards
Financial Statements 2010-2011: Balance Sheet
Balance Sheet
Assets
2010
Current Assets
Cash
Accounts receivable
Inventory
$
$
$
$
23,643
16,753
32,255
72,651
2011
$ 35,721
$ 21,732
$ 43,381
$100,834
Liabilities & Owner's Equity
2010
2011
Current Liabilities
Accounts payable
$ 41,786 $ 47,325
Notes payable
$ 19,046 $ 20,796
$ 60,832 $ 68,121
$103,006 $116,334
Total Liabilities
Fixed Assets
Net fixed assets
Long-term Liabilities
Long-term debt
$163,838 $184,455
$204,068 $248,625
Owner's Equity
Shareholder's Equity
New Equity
Retained Earnings
Total Assets
$276,719 $349,459
Total liabilities and
owner's equity
$ 85,259
$
$ 27,622
$112,881
$112,881
$ 20,500
$ 31,623
$165,004
$276,719 $349,459

6. Sunset Boards
Financial Statements 2010-2011: Cash Flow

Cash Flow from Assets
Operating Cash Flow
Earnings before interest & taxes
Depreciation
Taxes
2010
$ 79,110
$ 46,255
$ 13,811
$ 111,554
2011 cash flow is 15% of net income

James K. Glassman (2012) advises investing in companies with
free cash flow that exceeds GAAP earnings by at least 10%

Taking on more debt with low cash flow is a significant risk
Cash Flow to Creditors
Net Capital Spending:
2011 Net Fixed Assets
2010 Net Fixed Assets
2011 Depreciation
$ 248,625
$ 204,068
$ 52,282
$ 96,839
Change in Net Working Capital (NWC)
2011 Current Assets
2011 Current Liabilities
2010 Current Assets
2010 Current Liabilities
2011
$ 90,584
$ 52,282
$ 15,812
$ 127,054
2011
Interest expense
$ 11,526
Net New Borrowing
Long-term debt 2011 $ 116,334
$ 13,328
Long-term debt 2010 $ 103,006
$ (1,802)
$ 100,834
$ 68,121
$ 32,713
$ 72,651
$ 60,832
$ 11,819
Cash Flow to Stockholders
Dividends paid
Net new equity raised
2011
$ 31,623
$ 20,500
$ 11,123
Change in NWC $ 20,894
Cash Flow from Assets = $
9,321
Cash flow to creditors + Cash flow to stockholders = $ 9,321

7. Sunset Boards
Effects of Cash Flow on Performance
 It is very difficult for firms to successfully initiate growth with low levels of
cash flow
 Investors are hesitant to invest in companies with low cash flow because
they are at risk of not having cash on hand in a crisis
 Cash flow is a fluid process; it is important for a firm to watch cash flow
carefully and often to ensure there is an appropriate balance of money
coming in and going out

8. Sunset Boards
Expansion Proposal
 Opening of a second storefront in Hawaii
 Supply products to other sellers
 Expansion to be financed with both additional funds from outsiders and
bank loans

9. Sunset Boards
Recommendations
 Take the following steps to improve cash flow before pursuing
expansion:
 Research and utilize automated tools for tracking and reporting
financial data
 Implement regular financial reporting and analysis routines to forecast
cash flow 3-6 months in advance. Proactively assessing the data can
“illuminate trends, predict shortages and identify opportunities” to gain
control over swings in cash flow (Mayberry, 2013).
 Stay up to date on competitor pricing, and implement pricing increases
when appropriate
 Analyze and reduce costs; this can provide an extreme lift to cash flow
over time (Deo, 2013)
 Decrease outstanding debt

10. References
Deo, P. (2013). PRICING, COST STRUCTURE, AND CASH FLOW. Journal Of International
Finance & Economics, 13(3), 99-104.
GLASSMAN, J. K. (2012). Go With the Cash Flow. Kiplinger's Personal Finance, 66(8), 16-18.
Harnish, V. (2013). How do you get out of a cash-flow crunch?. Fortune.Com, 1.
Mayberry, W. (2013). Cash flow relief valves. Smart Business Akron/Canton, 23(6), 21.