Warner Company Balance Sheet
Warner Company Income Statement
Recall from reading checkpoint 3.1
to construct an income statement
in this space, adjusting as needed.
(You may delete these instructions.)
Long Term (fixed) assets
Total liabilities and equity
Q. What can you say about the firm’s financial condition based on these financial
Q. Using the CSU Online Library find one article that discuses financial statements, cash flow, or ratio analysis. Briefly
summarize the key points of the article as it relates to this unit. You may use any of the databases, but Business Source
Complete is a good starting place.
ratio analysis. Briefly
es, but Business Source
Answer the following four questions using the information found in the statements.
a. Does BigBox generate positive cash flow from its operations?
b. How much did BigBox invest in new capital expenditures over the last four years?
c. Describe BigBox’s sources of financing in the financial markets over the last four years.
d. Based solely on the cash flow statement for 2010 through 2013, write a brief narrative that
describes the major activities of BigBox’s management team over the last four years.
Instructions to use the Solution Template
Enter the given values from the textbook on page 116 in the yellow colored cells below.
In Cell E52, Calculate Current ratio using formula "Current Assets / Current Liabilities"
In Cell E53, Calculate Times interest earned using formula "Net Operating Income/ Interest
In Cell E54, Calculate Inventory Turnover using formula "Cost of goods sold/ Inventory"
In Cell E55, Calculate Total Asset turn Over using formula "Net Sales / Total Assets"
In Cell E56, Calculate Operating Profit Margin using formula "Net Operating Income / Net S
In Cell E57, Calculate Operating Return on Assets using formula "Net Operating Income / To
In Cell E58, Calculate Debt Ratio using formula "( Current Liabilities + Long-term debt) / Tot
In Cell E59, Calculate Average Collection Period using formula "( Accounts Receivable * 365
In Cell E60, Calculate Fixed Asset Turnover using formula "Net Sales / Net Fixed Assets "
In Cell E61, Calculate Return on Equity using formula "Net Income / Owner's Equity"
J. P. Robard Mfg., Inc.
Balance Sheet ($000)
Net fixed assets
Short-term notes payable
Total liabilities and owners’ equity
J. P. Robard Mfg., Inc.
Income Statement ($000)
Net sales (all credit)
Cost of goods sold
Operating expenses (includes $500 depreciation)
Net operating income
Earnings before taxes
Income taxes (40%)
Times interest earned
Total asset turnover
Operating profit margin
Operating return on assets
Average collection period
Fixed asset turnover
Return on equity
ctions to use the Solution Template
ge 116 in the yellow colored cells below.
a "Current Assets / Current Liabilities"
g formula "Net Operating Income/ Interest Expense"
ormula "Cost of goods sold/ Inventory"
g formula "Net Sales / Total Assets"
ing formula "Net Operating Income / Net Sales"
s using formula "Net Operating Income / Total Assets"
( Current Liabilities + Long-term debt) / Total Assets"
using formula "( Accounts Receivable * 365 ) / Credit Sales "
formula "Net Sales / Net Fixed Assets "
mula "Net Income / Owner's Equity"
KEEP THE CASH FLOWING
AN ENTREPRENEUR’S GUIDE TO MAKING SURE THE MONEY
COMING IN ALWAYS TOPS THE MONEY GOING OUT
Illustration by Nicholas Little
THE DEBTFREE WAY TO
HOW SPLICE SOFTWARE
USED SHREWD NUMBER
CRUNCHING AND HUNGRY
STARTUP THINKING TO
BOOTSTRAP ITS EXPANSION
When Tara Kelly expanded her business
operations to the U.S. back in 2013, it
didn’t cause her to sink into debt. Instead,
she dipped into her cash reserve—a sizable
cushion that let her open a physical oﬃce
in Chicago and employ a handful of healthinsured full-time staﬀ. “We knew it was
going to be tight, but we wanted to do it
ourselves and not take on any debt,” says
Kelly, president and CEO of Splice Software,
a Calgary-based provider of personalized
human voice messages.
Splice has been growing since its launch
in 2006; indeed, it has earned a spot on the
PROFIT 500 ranking of Canada’s FastestGrowing Companies for the past three years.
Thanks to rigorous cash-ﬂow practices,
Kelly and her team ensure there’s always
at least six months’ worth of operating
expenses available so the company is not
beholden to bankers. That cushion is put in
a mostly liquid interest-bearing account,
earmarked for growth plans and nasty
surprises like deathly slow months. “If not
a single soul [paid us], we have the buﬀer
to cover it,” says Kelly.
Cash ﬂow is the lifeblood of any business—
and also a major killer. According to a 2014
report by BDC, ﬁnancial management is the
biggest challenge facing 47% of small ﬁrms
in Canada. Being cash-poor puts businesses
at risk of missing their most basic obligations,
such as payroll, rent and loan payments.
And that makes it impossible to grow. Splice’s
rule of maintaining a six-month reserve is
just one way it keeps its coﬀers full. The
company’s forward-thinking approach to
cash-f low management makes it a rare
beast: a company in growth mode whose
ledger never dips into the red.
Ongoing, comprehensive communication
forms the core of Splice’s money-managing
philosophy. The ﬁ rm’s accounting team
reviews the ledger with upper management
every week and updates its cash-f low
projections every month. Considering
entrepreneurs aren’t always keen on number
crunching—39% of small-business owners
surveyed by Intuit Canada in 2015 failed
a ﬁ nancial literacy quiz—this step might
seem like a slog, but Kelly believes it’s
critical for managers to take part in meetings
about money. She views it as a good chance
not only to assess cuts that need to be made
but also to see if there are any opportunities
to invest money back in the company.
To keep c a sh com i ng i n, Spl ice is
no-nonsense about collecting the money
it’s owed. The ﬁ rm requires a signiﬁcant
deposit on all pilot projects and requests
payment within 30 days. It’s an aggressive
approach, and one that works best when a
SPLICE SOFTWARE INC.
The impetus for Splice came when
CEO TARA KELLY—who was then
running her own wellness business—
got a “terrible” robocall. She was so
put off by the experience that she built
a software system to improve the way
she communicated with her clients. It
worked so well that in 2006, she made
it a stand-alone business. Today,
Splice has more than $2 million in
annual sales, employs 25 people
and counts major retail and finance
brands among its customers.
business can clearly quantify its value to
customers, says Becky Reuber, a professor
of strategic management at the University
of Toronto’s Rotman School of Management.
“If you’re a trailblazer in your industry,
then people are going to want what you’re
selling and they’ll pay up,” she says. To
this end, Splice keeps some impressive
numbers handy during negotiations: For
example, its voice messages reach 95% of
all contacts and boast a 30% higher
listenership than average.
On the accounts payable front, Splice
employees frequently negotiate with suppliers
to secure payment terms of at least 45 days—
32 April 2016
and they get bonuses when they can stretch
the due date even further. This buys more
time and maximizes the interest earned
on the cash reserve. “You never want to be
so aggressive that you hurt your vendors,”
explains Kelly. “But once you know how far
they’ll go, there’s no reason money has to
sit in their bank instead of yours.”
Given Splice’s shrewd attention to its
balance sheet, it should come as no surprise
that its reserve cash is only to be used in
exceptional circumstances—and even then,
Kelly is adamant about quickly replenishing
the fund. For instance, the opening of Splice’s
Chicago location slashed the reserve in
half, so Kelly promptly informed her
employees they needed to drive up revenues
and save wherever possible. As a result,
the company moved its servers to the
Amazon Web Services cloud, which cut its
infrastructure costs by 34%. It also published
one less promotional white paper than
usual, which saved roughly $5,000. The
company even nixed regular deliveries of
organic fruit—a popular perk—for a month;
Kelly and her oﬃce managers picked up
produce at a local farmers’ market instead,
saving the company hundreds of dollars.
To keep everyone motivated, she used a
thermometer chart to track progress and
sent out updates every two weeks.
In about a year, the cash reserve
was back up to its optimal level.
Kelly is confident that staff
engagement played a crucial
role in this process. “Sometimes
as the owner, you think you have
to keep [money issues] to yourself
or else your staﬀ will be scared,”
she says. “But you can’t scale as a
team if you aren’t transparent.”
Promising a free trip to Mexico
doesn’t hurt, either. This year,
every employee at Splice will
get a seven-day vacation on
the company dime if they meet
not only their sales targets, but
their budget targets, too. Such
incentives actually go a long way
toward making a company cash-rich, says
Brad Cherniak, partner at Sapient Capital
Partners, a business advisory ﬁrm based in
Toronto, because they encourage everyone to
think about the bottom line: “It’s like you’re
giving everyone oars to row the boat. The
more people rowing, the faster the boat goes.”
This is the ethos Kelly uses to circumvent
the kind of irresponsible spending that ruins
so many businesses in expansion mode.
“When you grow, it’s easy to get away from
that startup mentality because you have
more money, but that can make you sloppy,”
she says. “You have to live like you’re still
starving.” –MAI NGUYEN
10 CASHFLOW RED
It’s not always clear that a
business is about to run
out of money. Could any
of these statements come
from your mouth?
We’re currently operating with
less than three times our monthly
expenditures available as cash
in the bank.
More than half of our
receivables are unpaid 90
days after the date of invoice,
despite our best efforts to
politely request remittance.
We have no formal processes
in place to gauge core clients’
ability to pay us. We don’t ask
for credit applications before
we start work for them and
have no way of checking their
One of our long-term clients
has suddenly started paying
us much more slowly than it
used to but is ordering more
than ever before.
Our clients often ask us for
extensions on their invoices
while they’re waiting to receive
money from their own clients.
(The business equivalent of,
“Don’t worry, buddy, I swear I’ll
get you for this pizza later.”)
We’ve been in business for more
than five years—well past the
startup stress zone—but our
operating expenses routinely
eclipse our gross sales.
We can’t create a rolling budget
because we don’t have a system
in place to accurately collect
financial operating data.
We’re very reliant on our line
of credit for cash flow, and
we’ve already had to go to the
bank to ask for a limit increase
more than once.
A major client has told us they
don’t care what the cost is, they
just want the job done; moreover,
they won’t even discuss the
expected tally, telling us “we
can talk money at the end.”
There is little to no
communication between our
sales and finance departments.
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