Discussion Prompt For purposes of this discussion, you will assume that you have just been hired by Josephine, a business which connects home-based food vendors to community members seeking home-cooked meals, similarly to the manner in which Uber connects drivers to people needing a ride, and Etsy connects buyers to home-based crafts manufacturers. You are new to Josephine, and have been hired as nance manager. You are responsible for Josephine's initial public offering, and in your capacity as nance manager, you wish to investigate Etsy because it is a rm which has a strikingly similar business model to that of Josephine. You intend to suggest Etsy as a peer, as you move closer to Josephine's offering. Assume that Etsy is relatively young in terms of length of operations as a publically-traded rm. This rm's Cash Flow from Assets, Operating Cash Flow and Cash Flow to Stockholders have sometimes taken on negative values, and thus you understand that this rm may or may not offer a positive example of nancial management, for a young and growing rm such as Josephine. You have thus scheduled a discussion on this matter with Josephine's chief executive ofcer to analyze Etsy (Etsy, 2016). Tasks Present your ndings to Josephine's chief executive ofcer, speaking as Josephine's nance director. Evaluate evidence found in Etsy's basic nancial statements that may be interpreted as reecting managerial goals, features of the rm's unique operational structure, and high growth: a. Using the balance sheet identity (which implies that assets must be equal to liabilities plus owners' equity), b. Using the cash ow identity (which implies that cash ow from assets must equal cash ow to creditors plus cash ow to stockholders), and c. Examining the need to distinguish between book and market values. In this module's discussion activity, you will investigate these areas of corporate finance as you examine basic financial statements for Etsy (ETSY), an online retailing e-commerce platform. Etsy, which was formed in 2005, held its initial public offering in 2015, and we can thus think of Etsy as a new, publicly traded firm. Etsy has experienced rapid growth (Egan, 2015; Securities and Exchange Commission, n.d.). It is also the largest certified socially-responsible company, or B Corporation, to go public in the United States (Schweiger & Marcus, 2015; Sweeney, 2013). Benefit corporations expand the obligations of boards legally, requiring them to consider environmental and social factors, as well as the financial interests of shareholders. This gives directors and officers the legal protection to pursue a mission and consider the impact their business has on society and the environment. An enacting state's benefit corporation statutes are placed within existing state incorporation codes so that existing code applies to benefit corporations in every respect, except where explicit provisions unique to the benefit corporation form have been included. Directors are required to balance stockholdersI interests, interests of those materially affected by the corporation's conduct, and a specific public benefit(s) identified in the firm's certificate of incorporation. Prior to engaging in this discussion, please review the Management Discussion and Analysis (MD&A) section of Etsy's Annual Report to Shareholders, and other research or materials of your choosing to become familiar with Etsy. Etsy's financial statements are provided, for your convenience. You may also visit Yahoo Finance, and type Esty's ticker symbol (ETSY) into the search box, to investigate more recent activity, however your answers here should address financial statements that are provided for your use. Etsy - Balance Sheet All numbers are quoted in thousands Period Ending 31-Dec-15 31-Dec-14 31-Dec-13 Assets Current Assets Cash And Cash Equivalents 271,244 69,659 36,795 Short Term Investments 21,620 19,184 18,075 Net Receivables 56,669 25,977 18,194 Inventory Other Current Assets 9,521 12,241 3,721 Total Current Assets 359,054 127,061 76,785 Long Term Investments Property Plant and Equipment 105,021 75,538 23,107 Goodwill 27,752 30,831 5,346Intangible Assets 2,871 5,410 493 Other Assets 6,967 7,363 428 Deferred Long Term Asset Charges 51,396 Total Assets 553,061 246,203 106,159 Current Liabilities Accounts Payable 45,635 21,083 10,389 Short/Current Long Term Debt 24,872 12,328 6,070 Other Current Liabilities 9,615 8,042 2,760 Total Current Liabilities 80,122 41,453 19,219 Long Term Debt 7,571 3,148 38 Other Liabilities 73,450 54,153 1,428 Deferred Long Term Liability Charges 61,420 149 1,259 Total Liabilities 222,563 98,903 21,944 Stockholders' Equity Misc Stocks Options Warrants 80,212 80,212 Common Stock 113 44 33 Retained Earnings -86,440 -32,377 -17,134 Treasury Stock Capital Surplus 406,020 103,355 20,944 Other Stockholder Equity 10,805 -3,934 160 Total Stockholder Equity 330,498 67,088 4,003 Net Tangible Assets 299,875 30,847 -1,836 Table 1. Etsy Balance SheetEtsy - Income Statement All numbers are quoted in thousands PeriodEnding 31-Dec-15 31-Dec-14 31-Dec-13 Cost of Revenue 96,979 73,633 47,779 Gross Prot 176,520 121,958 77,243 Operating Expenses I Research Development 42,694 36,634 27,548 I Selling General and Administrative 135,710 91,575 48,962 Total Operating Expenses 178,404 128,209 76,510 Operating Income or Loss -1,884 -6,251 I Income from Continuing Operations I Total Other Income/Expenses Net -24,584 -3,419 I Earnings Before Interest And Taxes -26,468 -9,670 I I Income Before Tax -27,994 -10,260 Income Tax Expense 26,069 4,983 Table 2. Etsy Income Statement Etsy - Cash Flow All numbers are quoted in thousands Period Ending 31-Dec-15 31-Dec-14 31-Dec-13 -15,243 -796 Operating Activities, Cash Flows Provided By or Used In Depreciation 18,717 17,291 12,388 Adjustments To Net Income 55,236 10,593 5,910 Changes In Accounts Receivables 45,764 -10,172 -7,739 I Changes In Liabilities 25,126 16,884 8,741 I Changes In Other Operating Activities -7,266 -1,962 Total Cash Flow From Operating Activities 29,2 11 12,087 16,542 Investing Activities, Cash Flows Provided By or Used In --- I Capital Expenditures 11,116 1,304 7,762 I Other Cash ows from Investing Activities -9,719 -18,309 -9,985 Total Cash Flows From Investing Activities m -20,723 -15,025 Financing Activities, Cash Flows Provided By or Used In I Sale Purchase of Stock 199,041 41,915 1,140 I Other Cash Flows from Financing Activities --- Total Cash Flows From Financing Activities 199,608 45,237 I Effect Of Exchange Rate Changes -3,951 -3,737 Change In Cash and Cash Equivalents 201,585 32,864 1,860 Table 3. Etsy Cash Flow Statement