1. What type of financing has Johnny Cupcakes relied upon so far? 2. What are the financial...

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1. What type of financing has Johnny Cupcakes relied upon so far?

2. What are the financial objectives of Johnny Cupcakes?

3. How does Johnny Cupcakes manage cash flows?

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1 In terms of financing operations Johnny Cupcakes has operated like most startup businesses At first the money came from family members in this case his mothers credit card Then some modest bank loans provided additional capital for the business More recently profits from operations have been used to finance new initiatives The firm wants to remain as a family firm and has not made use of equity financing 2 The CFO Johnnys mother sees her job as obtaining financing for the making and selling of tshirts Based on her comments it appears that the companys main financial objective is to stay solvent and to avoid longterm debt as much as possible To achieve the companys financial objectives she has used a credit card occasional bank loans and profits from operations This approach is not unusual for new startups The budget overruns that occurred when the LA store was opened caused her great concern and she has had to play catchup Based on that experience she is now concerned about where the money is going to come from to finance the opening of the store in London England Here are some observations about financial objectives as they relate to Johnny Cupcakes The overall objective of financial managers is to increase the companys wealth There are three specific elements that need to be coordinated in order for this to happen First cash flow must be managed This means making sure that the company has enough funds on hand to purchase the materials and human resources that are necessary to produce the companys products Johnny Cupcakes has experienced continued growth in sales revenues so it seems to be doing a reasonable job with respect to this element Second there must be effective financial control In the most general sense this means checking actual performance against plans to ensure that desired financial outcomes occur More specifically it means making accurate forecasts of sales revenues and developing financial budgets The companys performance with regard to this element has been a little uneven eg the cost associated with opening the LA store was apparently underestimated and this caused the CFO much concern Third there must be sound financial planning This involves the development of a financial plan which describes a companys strategy for reaching some future desired financial position In order for the strategy to be developed the financial manager must answer several important questions What funds are needed to meet immediate plans When will the firm need more funds and Where can the firm get the funds to meet both its short and longterm needs There is no mention of a financial plan in the video but if Johnny Cupcakes is a typical small startup it is likely that a detailed financial plan has not been developed Rather decisions about finance are made as they become necessary If the company continues to grow it will have to develop a much more formal and focused effort regarding managing cash flows improving financial control and doing financial planning 3 Cash flows appear to be managed largely by making credit card and bank loan ...View the full answer

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Asim farooq

I have done MS finance and expertise in the field of Accounting, finance, cost accounting, security analysis and portfolio management and management, MS office is at my fingertips, I want my client to take advantage of my practical knowledge. I have been mentoring my client on a freelancer website from last two years, Currently I am working in Telecom company as a financial analyst and before that working as an accountant with Pepsi for one year. I also join a nonprofit organization as a finance assistant to my job duties are making payment to client after tax calculation, I have started my professional career from teaching I was teaching to a master's level student for two years in the evening. My Expert Service Financial accounting, Financial management, Cost accounting, Human resource management, Business communication and report writing. Financial accounting : • Journal entries • Financial statements including balance sheet, Profit & Loss account, Cash flow statement • Adjustment entries • Ratio analysis • Accounting concepts • Single entry accounting • Double entry accounting • Bills of exchange • Bank reconciliation statements Cost accounting : • Budgeting • Job order costing • Process costing • Cost of goods sold Financial management : • Capital budgeting • Net Present Value (NPV) • Internal Rate of Return (IRR) • Payback period • Discounted cash flows • Financial analysis • Capital assets pricing model • Simple interest, Compound interest & annuities

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