Sunset Boards is a small company that manufactures and sells surfboards in Malibu. Tad Marks, the founder of the company, is in charge of the design and sale of the surfboards, but his background is in surfing, not business. As a result, the companys financial records are not well maintained. The initial investment in Sunset Boards was provided by Tad and his friends and family. Because the initial investment was relatively small, and the company has made surfboards only for its own store, the investors havent required detailed financial statements from Tad. But thanks to word of mouth among professional surfers, sales have picked up recently, and Tad is considering a major expansion. His plans include opening another surfboard store in Hawaii, as well as supplying his sticks (surfer lingo for boards) to other sellers. Tads expansion plans require a significant investment, which he plans to finance with a combination of additional funds from outsiders plus some money borrowed from banks. Naturally, the new investors and creditors require more organized and detailed financial statements than Tad has previously prepared. At the urging of his investors, Tad has hired financial analyst Christina Wolfe to evaluate the performance of the company over the past year. After rooting through old bank statements, sales receipts, tax returns, and other records, Christina has assembled the following information:

1. How would you describe Sunset Boardss cash flows for 2018? Write a brief discussion.

Operating cash flow = Net income + Depreciation

(2017)

2. In light of your discussion in the previous question, what do you think about Tads expansion plans?

2017 2018 Cost of goods sold $ 255,605 322,742 Cash 36,884 55,725 Depreciation 81,559 72,158 Interest expense 15,687 17,980 Selling and administrative 65,610 50,268 Accounts payable 26,186 44,318 Net fixed assets 318,345 387,855 Sales 611,224 501,441 Accounts receivable 26,136 33,901 Notes payable 29,712 32,441 Long-term debt 160,689 175,340 Inventory 67,674 50,318 New equity 19,500