Silver Cloud Computing is a company that provides cloud computing services. The company commenced operations on March 1, 2016. It acquired financing from the issuance of common stock for $40,000,000 and issuance of 4% bonds that mature in 2026 for $30,000,000. The income statements and balance sheets for the first two years are provided in a separate Excel spreadsheet. All amounts are in thousands.

Required:

The Chief Executive Officer (CEO) is interested in increasing sales and decreasing expenses. You have been requested to prepare a report that provides analysis of the financial statements and recommendations to improve the financial performance of the company. Your report should include the following items:

1. Prepare common sized financial statements for both years and provide comments on the differences between the years. Are there any areas of concern?

2. Calculate the following ratios and provide an analysis of the company based on the ratios:

a. Days Sales Outstanding

b. Profit Margin

c. Asset Turnover

d. Return on Assets

e. Financial Leverage

f. Return on Equity

g. PPE Turnover

h. Total Liabilities to Equity

i. Times Interest Earned

3. Based on the financial statements provided, prepare a statement of cash flows for the year ended February 28, 2018.

4. The company is currently providing sales discounts of 2% if accounts receivable are paid within 10 days. The net amount is due in 30 days. The CEO is recommending discontinuing the sales discounts and changing payment terms to net 30. Comment on the potential impacts to the company of this change.

5. The computer equipment was acquired 2 years ago at the start of the business. Depreciation of the computers was calculated using straight-line depreciation over a 3 year period with no salvage value. The CEO is recommending that the computer equipment not be replaced for another 3 years and extending the lives of the current computer equipment to 5 years. Comment on the potential impacts to the company of this change.

6. The company was the victim of a cyber attack. It is not yet known the extent of information that was obtained. The company may be subject to lawsuits as a result of the security breach. Discuss the impacts this may have on the companys financial statements.

7. The CEO would like to pay dividends to the stockholders. Should the company pay dividends to the shareholders and how would this impact the companys financial statements?

SILVER CLOUD COMPUTING Income Statements For the Years Ended February 28, 2018 and 2017 fye 2/28/2018 (in thousands) fye 2/28/2017 (in thousands) Sales Sales Discounts Net Sales 225,000 3.375 221.625 200,000 2.500 197.500 Wages and Salaries Bad Debt Expense Depreciation Marketing Expense Occupancy Expense Research & Development Total Expenses 73,500 2,100 20,000 33,750 54,000 22.500 205.850 70,000 2,000 20,000 30,000 54,000 20,000 196.000 15,775 1,200 14,575 1,500 1.200 300 Income from Operations Interest Expense Income Before Taxes Income Taxes (40%) 5,830 120 Net Income 8.745 180