Explain the purpose of each financial statement

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Reference no: EM131943796

Scenario: Your team has been hired to provide financial analysis for a start-up company, Bobble in Style, which produces customized bobble heads.

The bobble heads are made out of less rigid materials and are more true to life than those of competitors. The company inventors, Mr. and Mrs. Lee, are going to pitch their idea to Shark Tank in a few months, but first they need to have a better understanding of the business financials.

The Lee's are already creating and selling their product from their home-based office and work area. They know what costs are involved with making the bobble heads on a small scale, but they don't have an understanding of financial figures beyond basic costs. They need you to make sense of various financial figures for them.

Based on the above scenario, please create an excel file that answers questions 1 and 2.

1. Financial Statements: Develop an Income Statement for 20XX, Cash Flow Statement for 20XX, and Balance Sheetas of the end of 20XX based on the data provided below for year 20XX. All sales are collected when the sale is made and all expenses are paid when the expense is incurred.

Explain the purpose of each financial statement.

a. Income Statement Data for 20XX:

• Units produced and sold = 420

• Sales ($80 per unit selling price) = $33600

• Cost of goods sold ($30 per unit, all variable costs) = $12600

• Labor = $0 (Mr. and Mr. Lee were the only ones working and did not pay themselves)

• Advertising fees =$2000

• Bank fees = $150

• Phone/internet = $1200

• Shipping ($3 per unit) = $1260

• Utilities = $900

• Office supplies = $800

• Interest expense on note payable = $350

• Depreciation expense (straight line) = $800

• Income tax rate = 26 %

b. Cash flow statement -Other Financial Data for 20XX:

• Proceeds from sale of equipment = $3000. The equipment originally cost $1000 and had accumulated depreciation of $200.

• Purchase of equipment = $1600 (The machine is purchased on the last day of 20XX so no depreciation expense is recorded.)

• Repayment of note payable = $5000

• Consider any data relevant from the income statement.

c. Balance Sheet Data for Beginning of 20XX:

• Cash and cash equivalents = $10000

• Accounts receivable = $0 (Cash is received at time of sale)

• Raw materials inventory = $10500

• Equipment = $5000 (This includes the $1000 cost of the equipment sold in 20XX).

• Accumulated depreciation = $1,000 (This includes the accumulated depreciation of 200 for the equipment sold in 20XX.

• Accounts payable = $0 (Cash is paid at the time of purchase.)

• Note payable = $5000 (This is the note payable which is repaid in 20XX)

• Common stock = $15000

• Retained earnings = $4500

2. Financial Ratios: Calculate the following financial ratios and explain the meaning of the results.

a. Net Profit Margin

b. Quick Ratio

c. Debt-to-Equity Ratio

Reference no: EM131943796

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