The financial ratios can be used to complete this activity
ICE CREAM DREAMS Cynthia King is a grade 12 high school student in Muskoka, Ontario. She has worked very hard in school this past year and was delighted in March to find out that she was accepted to her first choice university. Cynthia wants to become a Chartered Professional Accountant (CPA) and eventually run her own business. Cynthia realizes the next four years will be expensive but she has a plan. There are two local ice-cream parlors for sale for the same amount. Both operate between May and late August. Trevor King, Cynthias dad, is a CPA. He is proud of Cynthias accomplishments and has performed a preliminary analysis of both companies. He concludes that he can purchase both companies and sell them in four years at approximately the same amount as the purchase price. Cynthia estimates she will need a total of $15,000 each year for tuition, books, residence and other living costs. Her dad has agreed to purchase one of the businesses, providing she presents him with a solid business analysis. Cynthia has researched both companies and found out the following information in the next two pages.
Cynthia was reading the local paper on the weekend and found out that scoopable ice cream the ice cream sold in tubs is the biggest segment within total frozen desserts, but the industry is starting to see a shift to things customers perceive to be healthy for them, such as frozen yogurt and frozen flavoured ices. Cynthia is very excited about this possible new venture. Shes even convinced her younger brother and sister to work for free ice cream, if her dad buys either business. With their help, she wouldnt need other employees and would incur no wage expenses.
- The business began in Year 1 - They offer 10 flavours of yogurt. Customers can choose from 8 different fruits and 2 basic flavours (vanilla and chocolate). They order vanilla frozen yogurt blocks and prepare the flavours based on the customers request. The fruit is purchased frozen from another supplier. Oftentimes when they run out of frozen fruit, fresh fruit is used. Fresh fruit is avoided due to the high cost. - The business is owned by Yogi Yumyum. He is only involved in the administration of the business and hires employees to work in the store. - This store is located on a very busy street in Muskoka. There is a public parking lot across the street. - The rent is negotiated on an annual basis. The annual rent for Year 3, Year 2 and Year 1 was $3900, $3600 and $3000 respectively. The amounts shown in the financial information are for four months. - They have one supplier for the yogurt product and frozen fruit. They have been able to reduce the cost over time due to volume discounts. - The depreciation is for a refrigerator that was purchased brand new in Year 1. - The company sold an old computer during Year 3. Since it wasnt part of the normal operations of the business, it was shown on a separate line. 
Muskokas Original Ice Cream
- This business has been around for 45 years. - There have been many owners over the years. - The most current owner, Paul Shoemaker, owned and operated the business seven days a week. He hired 1 part-time employee to help with weekends and evenings. - The store is located on a residential street which has only street parking. - The store offers 35 flavours of ice cream. All ice cream is purchased by the tub. The supplier makes deliveries from Monday to Friday. There is a 24-hour turn-around for all deliveries. - During Year 1, the business entered a 5-year lease at $3000/year. The amounts shown in the financial information are for four months. - The owner believes that sales dropped in Year 3 due to an unusually rainy summer. - The refrigerator is over 20 years old. Paul has had some trouble with it over the past few summers but was able to get it repaired by a close friend in exchange for some ice cream. - This store used to be very popular but people got frustrated because they often ran out of the popular flavours. - The business used to sell ice cream accessories such as decorative cups, ice cream scoopers, fridge magnets etc. These products were not selling well so all the merchandise was donated to a local school for a fundraiser. The cost of the product was shown as a product write off in Year 2. Since it wasnt part of the normal operations of the business, it was shown on a separate line.
Part 1: Making the Ice Cream Dream a Reality! 80% (See Rubric)
Place yourself in Cynthias shoes & prepare an analysis regarding the possible purchase of the businesses. Write a business report addressed to your father. The report should be in Google Docs or Word format and may contain Google Sheets or Excel. Hand into Culminating Task Part 1 Assignment space. Step 1: Business Overview 10% State your objective. Identify & explain at least 4 business risks that you should consider when buying and operating an ice cream business. Step 2: Qualitative (Non-financial) Analysis 15% State the advantages and disadvantages for each company. Be sure to provide concrete evidence to support your point. Step 3: Quantitative (Financial) Analysis 40% Prepare a horizontal and vertical analysis for each business for the 3 years. Perform an analysis of those results for each company stating all observations. Calculate any relevant ratios for each company and report your findings. Step 4: Recommendation 15% Outline your final recommendation on which business to purchase. Include detailed information to support your recommendation. Part 2: Internal Controls 20% (See Rubric) Cynthia is still planning on having her sister and brother work in the ice cream store for free ice cream. As part of her financing agreement, she has promised to implement proper internal controls to ensure the assets of the business are properly safeguarded. As Cynthia, you are going to write a business memo to your financer, detailing at least 3 internal controls that will be in place to protect the company.
YOGI LOVES YOGURT Balance Sheet (unaudited) YOGI LOVES YOGURT Income Information (unaudited) For the 4 month period ending August 31st August 31st Assets Year 3 Year 2 $ 5,000 $ 4,500 Cash Year 3 Year 2 Year 1 $ 30,000 $ 27,000 $ 21,000 Supplies 800 700 Inventory 4,000 4,500 Sales Expenses: Cost of product Rent Utilities (including phone, hydro) Depreciation (refrigerator) Wages Equipment (net amort.) 10,000 10,000 $ 19,800 $ 19,700 Total Assets 500 13,500 12,150 9,450 1,300 1,200 1,000 1,000 900 800 500 500 4,000 3,700 3,450 $ 20,300 $ 18,450 $ 15,200 750 $ 10,450 $ 8,550 $ 5,800 Liabilities & Equity Accounts Payable Bank Loan Gain from computer sale Net Income $ 2,000 $2,500 8,000 7,500 10,000 10,000 Total Liabilities Equity 9,800 9,700 Total Liabilities & Equity S 19,800 $ 19,700 MUSKOKA'S ORIGINAL ICE CREAM MUSKOKA'S ORGINAL ICE CREAM Income Information (unaudited) For the 4 month period ending August 31st Balance Sheet (unaudited) August 31st Assets Year 3 Year 2 Year 2 Year 1 Year 3 $ 30,000 $ 33,000 $ 36,000 Sales Expenses: Cost of product Rent Utilities (including phone, hydro) Depreciation (refrigerator) Wages 13,000 15,000 18,000 1,000 1,000 1,000 500 400 300 300 300 300 1,000 1000 1,000 $ 15,800 $ 17,700 $ 20,600 (3.000) 314,200 $ 12,300 15,400 Cash $ 3,000 $ 4,000 Supplies 400 600 Inventory 5,000 4,500 Equipment (net amort.) 9,000 10,000 Total Assets $ 17,400 $ 19,100 Liabilities & Equity Accounts Payable $ 3,500 $ 3,000 Bank Loan 6,000 7,000 Total Liabilities 9,500 10,000 Equity 7,900 9,100 Total Liabilities & Equity $ 17,400 $ 19,100 Product write off Net Income Ice Cream Dreams Case Study Rubric Level 3 Level 4 Part 1 - Making the Ice Cream Dream a Reality (80%) Criteria Level 1 Level 2 Knowledge/Understanding Business Overview The student The student 10% demonstrates . demonstrates Criterion: a limited some Demonstrates an understanding understanding understanding of the of the business of the business business risks risks risks stating at least 3 risks The student . demonstrates considerable understanding of the business risks stating 4 business risks The student: . demonstrates a thorough understanding of the business risks stating more than 4 risks Thinking/Inquiry Qualitative Analysis 20% Criterion: Effectively analyzes and information assesses business The student uses critical thinking skills to analyze the businesses with limited effectiveness discusses less than 2 advantages & disadvantages for each company The student: uses critical thinking skills to analyze the businesses with moderate effectiveness discusses at least 3 advantages & disadvantages for each company The student: uses critical thinking skills to analyze the businesses with considerable effectiveness . discusses at least 4 advantages & disadvantages for each company The student uses critical thinking skills to analyze the businesses with a high degree of effectiveness discusses more than 4 advantages and disadvantages for each company The student: compares the income statements with some accuracy and effectiveness The student: compares the income statements with considerable accuracy and effectiveness The student: compares the income statements with a high degree of accuracy and effectiveness Application Quantitative Analysis The student 20% . compares the income Criterion: statements with Effectively compares the limited accuracy income statements of and two ice cream effectiveness businesses using a cash flow and contribution margin Communication Final Recommendation The student 10% communicates Criterion: recommendation Communicates with limited recommendation with clarity and sense clarity and sense of of purpose . demonstrates purpose using a proper business format limited command of the business report The student: communicates recommendation with some clarity and sense of purpose . demonstrates moderate command of the business report The student communicates recommendation with considerable clarity and sense of purpose . demonstrates considerable command of the The student communicates recommendation with a high degree of clarity and sense of purpose . demonstrates extensive command of the business report business report Part 2 Internal Controls 20 % Criteria Level 1 Level 2 Level 3 Level 4 Knowledge Understanding Qualitative Analysis 15% Criterion: Demonstrates an understanding of internal controls to safeguard assets some The student The student demonstrates a demonstrates limited understanding understanding of of internal internal controls controls discusses at discusses less least 2 internal than 2 internal controls to be controls to be implemented implemented The student . demonstrates considerable understanding of internal controls discusses 3 internal controls to be implemented The student demonstrates a thorough understanding of internal controls discusses more than 3 Internal controls to be implemented YOGI LOVES YOGURT Balance Sheet (unaudited) YOGI LOVES YOGURT Income Information (unaudited) For the 4 month period ending August 31st August 31st Assets Year 3 Year 2 $ 5,000 $ 4,500 Cash Year 3 Year 2 Year 1 $ 30,000 $ 27,000 $ 21,000 Supplies 800 700 Inventory 4,000 4,500 Sales Expenses: Cost of product Rent Utilities (including phone, hydro) Depreciation (refrigerator) Wages Equipment (net amort.) 10,000 10,000 $ 19,800 $ 19,700 Total Assets 500 13,500 12,150 9,450 1,300 1,200 1,000 1,000 900 800 500 500 4,000 3,700 3,450 $ 20,300 $ 18,450 $ 15,200 750 $ 10,450 $ 8,550 $ 5,800 Liabilities & Equity Accounts Payable Bank Loan Gain from computer sale Net Income $ 2,000 $2,500 8,000 7,500 10,000 10,000 Total Liabilities Equity 9,800 9,700 Total Liabilities & Equity S 19,800 $ 19,700 MUSKOKA'S ORIGINAL ICE CREAM MUSKOKA'S ORGINAL ICE CREAM Income Information (unaudited) For the 4 month period ending August 31st Balance Sheet (unaudited) August 31st Assets Year 3 Year 2 Year 2 Year 1 Year 3 $ 30,000 $ 33,000 $ 36,000 Sales Expenses: Cost of product Rent Utilities (including phone, hydro) Depreciation (refrigerator) Wages 13,000 15,000 18,000 1,000 1,000 1,000 500 400 300 300 300 300 1,000 1000 1,000 $ 15,800 $ 17,700 $ 20,600 (3.000) 314,200 $ 12,300 15,400 Cash $ 3,000 $ 4,000 Supplies 400 600 Inventory 5,000 4,500 Equipment (net amort.) 9,000 10,000 Total Assets $ 17,400 $ 19,100 Liabilities & Equity Accounts Payable $ 3,500 $ 3,000 Bank Loan 6,000 7,000 Total Liabilities 9,500 10,000 Equity 7,900 9,100 Total Liabilities & Equity $ 17,400 $ 19,100 Product write off Net Income Ice Cream Dreams Case Study Rubric Level 3 Level 4 Part 1 - Making the Ice Cream Dream a Reality (80%) Criteria Level 1 Level 2 Knowledge/Understanding Business Overview The student The student 10% demonstrates . demonstrates Criterion: a limited some Demonstrates an understanding understanding understanding of the of the business of the business business risks risks risks stating at least 3 risks The student . demonstrates considerable understanding of the business risks stating 4 business risks The student: . demonstrates a thorough understanding of the business risks stating more than 4 risks Thinking/Inquiry Qualitative Analysis 20% Criterion: Effectively analyzes and information assesses business The student uses critical thinking skills to analyze the businesses with limited effectiveness discusses less than 2 advantages & disadvantages for each company The student: uses critical thinking skills to analyze the businesses with moderate effectiveness discusses at least 3 advantages & disadvantages for each company The student: uses critical thinking skills to analyze the businesses with considerable effectiveness . discusses at least 4 advantages & disadvantages for each company The student uses critical thinking skills to analyze the businesses with a high degree of effectiveness discusses more than 4 advantages and disadvantages for each company The student: compares the income statements with some accuracy and effectiveness The student: compares the income statements with considerable accuracy and effectiveness The student: compares the income statements with a high degree of accuracy and effectiveness Application Quantitative Analysis The student 20% . compares the income Criterion: statements with Effectively compares the limited accuracy income statements of and two ice cream effectiveness businesses using a cash flow and contribution margin Communication Final Recommendation The student 10% communicates Criterion: recommendation Communicates with limited recommendation with clarity and sense clarity and sense of of purpose . demonstrates purpose using a proper business format limited command of the business report The student: communicates recommendation with some clarity and sense of purpose . demonstrates moderate command of the business report The student communicates recommendation with considerable clarity and sense of purpose . demonstrates considerable command of the The student communicates recommendation with a high degree of clarity and sense of purpose . demonstrates extensive command of the business report business report Part 2 Internal Controls 20 % Criteria Level 1 Level 2 Level 3 Level 4 Knowledge Understanding Qualitative Analysis 15% Criterion: Demonstrates an understanding of internal controls to safeguard assets some The student The student demonstrates a demonstrates limited understanding understanding of of internal internal controls controls discusses at discusses less least 2 internal than 2 internal controls to be controls to be implemented implemented The student . demonstrates considerable understanding of internal controls discusses 3 internal controls to be implemented The student demonstrates a thorough understanding of internal controls discusses more than 3 Internal controls to be implemented
