Sunset Boards is a small company that manufactures and sells surfboards in Malibu. Tad Marks, the founder of the company, is in charge of the design and sale of the surfboards, but his background is in surfing, not business. As a result, the company's financial records are not well maintained. The initial investment in Sunset Boards was provided by Tad and his friends and family. Because the initial investment was relatively small, and the company has made surfboards only for its own store, the investors haven't required detailed financial statements from Tad. But thanks to word of mouth among professional surfers, sales have picked up recently, and Tad is considering a major expansion. His plans include opening another surfboard store in Hawaii, as well as supplying his "sticks" (surfer lingo for boards) to other sellers. Tad's expansion plans require a significant investment, which he plans to finance with a combination of additional funds from outsiders plus some money borrowed from banks. Naturally, the new investors and creditors require more organized and detailed financial statements than Tad has previously prepared. At the urging of his investors, Tad has hired financial analyst Paula Wolfe to evaluate the performance of the company over the past year. After rooting through old bank statements, sales receipts, tax returns, and other records, Paula has assembled the following information: 2013 2014 Cost of goods sold $169,969 214,607 Cash 24,524 26,056 Depreciation 47,980 54,230 Interest expense 10,442 11,954 Selling & administrative expenses 33,425 43,626 Accounts payable 43,344 48,090 Net fixed assets 211,680 264,021 Sales 333,426 406,427 Accounts receivable 17,378 22,542 Notes payable 19,757 21,571 Long-term debt 106,848 119,976 Inventory 36,570 50,185 New equity 0 20,160
QUESTIONS:
1. How would you describe Sunset Boards' cash flows for 2014? Write a brief discussion.
2. In light of your discussion in the previous question, what do you think about Tad's expansion plans?