COMFY HOME COMPANY As of December 31, 2017 in US$ \'000 Current Assets Current L
ID: 2547300 • Letter: C
Question
COMFY HOME COMPANY
As of December 31, 2017
in US$ '000
Current Assets Current Liabilities
Cash $110 Current portion of bank loan $95
Accounts receivable $140 Wages payable $60
Inventories $310 Accounts Payable $90
Prepaid expenses** $25 Deferred revenue and gift cards* $15
Total Current Assets $585 Total Current Liabilities $260
Buildings and property $450 Bank Loan $300
Leasehold Improvements $120
(Accumulated Depreciation) $(154) Owners' equity $250
Net $416 Retained earnings $191
Total Assets $1,001 Total liabilities and owners' equity $1,001
COMFY HOME COMPANY COMFY HOME COMPANY COMFY HOME COMPANY
Balance Sheet Income Statement Statement of Cash Flows
As of December 31, 2018 For the twelve months ending December 31, 2018 For the twelve months ending December 31, 2018
in US$ '000 in US$ '000 in US$ '000
Current Assets Current Liabilities Total Revenue $1,598
Cost of Goods Sold $958
Cash $129 Current portion of bank loan $55 Gross Profit $640
Accounts receivable $310 Wages payable $109 Wages $195
Inventories $358 Accounts Payable $192 Selling expenses $48
Prepaid expenses $33 Deferred revenue and gift cards $13 Administrative expenses $93
Insurance expense $39
Depreciation expense $70
Total Current Assets $830 Total Current Liabilities $369 Operating Profit $195
Interest $27
Buildings and properties $455 Bank Loan $248 Taxes (21%) $35
Leasehold Improvements $130 Net Income $133
(Accumulated Depreciation) $(224) Owners' equity $250
Net $361 Retained earnings $324
Total Assets $1,191 Total liabilities and owners' equity $1,191
Increase/decrease in Cash
Cash, ending balance $129
Please consider Comfy Home's business lifecycle and answer the following:
a. Based only on the Cash Flow Profile of Comfy Home, which of the following stages of the business lifecycle do you think Comfy Home is in?
i. Startup / Fast Growing
ii. Profitable / Growing
iii. Mature / Steady State
iv. In Decline
b. Assume you are the owner of Comfy Home. Based on the stage of the business lifecycle Comfy Home is in and its statement of cash flows, describe, in detail, what your top 2-3 concerns would be with regards to the company's cash flow.
Please explain your concerns and provide possible actions the Company could take to alleviate those concerns.
Explanation / Answer
a.
-190
Based upon the above details provided, first we have to understand the stages of life cycle :
i. Startup : This is the initial stage in which a manufacturer tries to prepare the product as per customer's need and cost in this stage is high.
ii. Growth : If customers response in a possitive manner regarding the product than manufacturer tries to invest more in the product for the growth of business.
iii. Maturity : In this stage low investment required as product is known by its name and it has some brand value.
iv. Decline : In case the product is not accepted by the customers, then it is the position of quitting from the market.
Hence from the above it is concluded that company is in its Growth Stage and have a lot of oppotunities to reach its Maturity.
b. Wages are directly related to revenue, hence core area would be to reduce the average cost of wages. Apart from it, company should try to improve its operating cylce in respect of accounts receivable as company is new in the market, it require more liquidity and if company has its positive cash flow, business will grow definitely.
Balance Sheet 2018 2017 Cash Impact Current Liabilities Current portion - Bank loan 55 95 -40 Wages Payables 109 60 49 Accounts payables 192 90 102 Deffered Revenue 13 15 -2 369 260 109 Bank Loan 248 300 -52 Owners Equity 250 250 0 Retained Earning 324 191 133 1191 1001 190 Current Assets Cash 129 110 -19 Accounts Receivables 310 140 -170 Inventories 358 310 -48 Prepaid expense 33 25 -8 830 585 -245 Building 455 450 -5 Leasehold Improvements 130 120 -10 Accumulated Depreciation -224 -154 701191 1001
-190
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