FINANCE ASSIGNMENT
1) Nepean Boards is a small company that manufactures and sells snowboards in Ottawa. Scott Redknapp, the founder of the company, is in charge of the design and sale of the snowboards, but he is not from a business background. As a result, the company's financial records are not well maintained.
The initial investment in Nepean Boards was provided by Scott and his friends and family. Because the initial investment was relatively small, and the company has made snowboards only for its own store, the investors have not required detailed financial statements from Scott. But thanks to word of mouth among professional boarders, sales have picked up recently, and Scott is considering a major expansion. His plans include opening another snowboard store in Calgary, as well as supplying his "sticks" (boarder lingo for boards) to other sellers.
Scott'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 the banks. Naturally, the new investors and creditors require more organized and detailed financial statements than Scott previously prepared. At the urging of his investors, Scott has hired financial analyst Jennifer Bradshaw to evaluate the performance of the company over the past year.
After rooting through old bank statements, sales receipts, tax returns, and other records, Jennifer has assembled the following information:
Nepean Boards currently pays out 50 percent of net income as dividends to Scott and the other original investors, and has a 20 percent tax rate. You are Jennifer's assistant, and she has asked you to prepare the following:
1. A statement of comprehensive income for 2014 and 2015.
2. A statement of financial position for 2014 and 2015.
Questions
In light of your discussions in the previous question, what do you think about Scott's expansion plans?
2) Ed Cowan was recently hired by Tuxedo Air Inc. to assist the organization with its financial planning and to evaluate the organization's performance. Ed graduated from university six years ago with a finance degree. He has been employed in the finance department of a TSX100 company since then.
Tuxedo Air was founded 12 years ago by friends Mark Taylor and Jack Rodwell. The organization manufactured and sold light airplanes over this period, and its products have received high reviews for safety and reliability. The organization has a niche market in that it sells primarily to individuals who own and fly their own airplanes. The company has two models; the Sparrow, which sells for $53,000, and the Vulture, which sells for $78,000.
Although the company manufactures aircraft, its operations are different from commercial aircraft companies. Tuxedo Air builds aircraft to order. By using prefabricated parts, the organization can complete the manufacture of an airplane in only five weeks. The organization also receives a deposit on each order, as well as another partial payment before the order is complete. In contrast, a commercial airplane may take one and one-half to two years to manufacture once the order is placed.
Mark and Jack have provided the following financial statements. Ed has gathered the industry ratios for the light airplane manufacturing industry.
Questions
1. Using the financial statements provided for Tuxedo Air, calculate each of the ratios listed in the table for the light aircraft industry.
2. Mark and Jack agree that a ratio analysis can provide a measure of the company's performance. They have chosen Bombardier as an aspirant company. Would you choose Bombardier as an aspirant company? Why or why not? There are other aircraft manufacturers Tuxedo Air could use as aspirant companies. Discuss whether it is appropriate to use any of the following companies: Boeing, XOJET, Piper Aircraft, and AeroCentury.
3. Compare the performance of Tuxedo Air to the industry. For each ratio, comment on why it might be viewed as positive or negative relative to the industry. Suppose you create an inventory ratio calculated as inventory divided by current liabilities. How do you think Tuxedo Air would compare to the industry average?
TABLE 3.8
Common financial ratios.
Attachment:- Finance_Assignment.rar