These financial statements related to the Lady M question
Exhibit 2a Unaudited Consolidated Statements of Financial Condition 31/12/12 31/12/13 Assets Cash 524,785 712,011 53,037 276,197 39,360 23 54,100 135.267 387,044 107.937 5,689 99,809 449,900 1,397,402 893,402 1,512,610 2,960,367 1,347.948 281,383 Investments in subsidiaries Intercompany receivable Affiliated receivable Accounts receivable Inventory Prepaid expenses and other receivables Deposits Additional to deposits AFN Fixed assets, net Total Assets CURRENT ASSETS Liabilities and Shareholders' Equity Liabilities: Compensation payable Intercompany payable Accounts payable and accrued expenses Deferred rent payable Advanced receipts Corporate tax payable Interest payable Loans payable - short term Loans payable - long term Total Liabilities CURRENT LIABILITIES Shareholders' Equity: Capital Stock Retained earnings Current earnings Accumulated other comprehensive income (loss) Total Shareholders' Equity 267,826 434 3,500 412,500 295,001 979,261 684.260 328,561 63,097 6,022 2,842 3,500 99,980 917,635 1,703,021 785,385 1,886,504 (1.780.234) 311,871 1,886,504 (1.484,770) 855,613 418,141 1,257,346 Total Liabilities and Members' Equity 1,397,402 2,960,367 31/12/13 Exhibit 2b Unaudited Consolidated Statements of Income and Comprehensive Income 31/12/12 Sales Revenue 4,132,517 Cost of Sales 1,303,416 Gross Margin 2,829,101 7,491,187 1,632,722 5,858,465 Compensation Salaries and wages Employee benefits Total Compensation PRIME COST 1,309,589 65,676 1,375,265 1,453,836 2,691,881 124,827 2,816,708 3,041,758 2,449,200 273,864 4,004 Other Controllable Expenses Sales, General, & Admin Direct operating expenses Marketing Utilities General and Administrative Repairs and Maintenance Research and Development Total other controllable expenses CONTROLLABLE PROFIT 4,342,500 499,837 24,679 125,102 406,819 104,450 91,272 233,335 98,506 700,982 752,854 1,160,887 1,880,871 351,075 41,800 41,800 753,379 149,007 149,007 0 0 40,332 49,974 Occupancy and Depreciation Expenses Occupancy Depreciation & Amortization Depreciation Amortization Insurance Other (Income) Expense Other (Income) Interest Expense Other expense NET INCOME BEFORE INCOME TAXES Corporate Taxes -38,479 37,186 -21,627 21,804 3,179 - 316,292 4,421 929,804 74,191 NET INCOME 311,871 855,613 Exhibit 2c Unaudited Consolidated Statements of Retained Earnings and Stockholders' Equity 31/12/12 31/12/13 Capital Stock Beginning Balance 1,886,504 1,886,504 Stock Issued Ending Balance 1,886,504 1,886,504 Reinvested Earnings Beginning Balance Net Income Dividends Ending Balance (1,780,234) 311,871 (1,484,770) 855,613 (1,468,363) (629,158) Accumulated Other Comprehensive Income (loss) Beginning Balance Net foreign currency translation Ending Balance Total Shareholders' Equity 418,141 1,257,346 Exhibit 2d Unaudited Consolidated Statements of Cash Flows 31/12/12 31/12/13 311,871 855,613 149,007 (227) 7.782 (135,267) (5,666) (110,847) (17,677) Cash Flows from Operating Activities Net Income Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization expense Other Decrease (increase) in: Affiliated receivable Prepaid expenses and other receivables Accounts receivables Intercompany receivables Deposits Inventory Increase (decrease) in: Compensation payable Intercompany payables Accounts payable and accrued expenses Deferred rent payables Advanced receipts Corporate tax payable Loans payable - short term Interest payable Total Adjustments Net cash provided (used) by operating activities (16,875) (4.597) (45,709) (68,577) 281,383 63,837 5,328 (12,520) 558 (22) 270,000 1,750 240,692 552,563 184,065 1,039,678 Cash Flows from Investing Activities Purchase of fixed assets Leasehold improvements Net cash provided by (used in) investing activities (15,197) (127,015) (142,212) (394,150) (800,244) (1,194,393) Cash Flows from Financing Activities Proceeds (payments) on long-term loan (24,540) 222,634 Net cash provided by (used in) financing activities (24,540) 222,634 Net increase (decrease) in cash and cash equivalents Cash, beginning of period Cash, end of period 385,811 138,975 524.785 67.919 644,092 712,011 The Valuation and Financing of Lady M Confections (Second Report) Based on the financial statements of Lady M Confections and the prospect growth of the firm, you are required to: Forecast the financial statements for the years 2014 till 2019, taking into consideration the assumptions given in the case. Noting that, additional funds needed will be either invested in deposits or will be covered through short term loans. . Define whether the performance of the firm is expected to improve through comparing the previous performance with the expected. You are required to tackle the important points that require improvement. Calculate the FCFs of the firm based on the assumptions given in the case. ) . Working capital increased by $10,800 in 2012, $271,200 in 2013, and was expected to increase by $68,000 in 2014. In forecasting the next five years, Romaniszyn and Tom assumed the following: Annual sales growth would be 20% for 2015, 40% in 2016 (since the World Trade Center location would potentially be opening in late 2015), and 25% for the three years afterward. They assumed an annual sales growth rate of 4% in perpetuity. Cost of goods sold had consistently been approximately 25% of sales but had been dipping in the past two years. They expected it to remain approximately constant over the next five years With rent and labor costs making up a large portion of their expenses, Romanis yn and Tom expected SG&A costs to remain approximately the same as prior years, but to decrease by one percentage point each year. . Although R&D costs had been negligible in the past, they decided they should probably assume some cost in the future as well, albeit only 0.1% of sales. With the prospect of opening a new store in the following year, the two decided to allocate $1,000,000 for capital expenditures in 2015. After that, however, they assumed that no new stores would be opened and capital expenditures would remain approximately 0.3% of sales. Depreciation was expected to rise by five percentage points each year starting in 2014, becoming 100% of capital expenditures in 2019. Additions to intangibles would be zero. Amortization would be zero. The tax rate would continue to be 35%. The two expected the change in working capital to remain a constant percent of the change in sales and behave similarly to 2014 In order to do a discounted cash flow analysis, Romaniszyn and Tom assumed Lady M's weighted average cost of capital was 12%. They chose a 12x EBITDA multiple. . . Exhibit 2a Unaudited Consolidated Statements of Financial Condition 31/12/12 31/12/13 Assets Cash 524,785 712,011 53,037 276,197 39,360 23 54,100 135.267 387,044 107.937 5,689 99,809 449,900 1,397,402 893,402 1,512,610 2,960,367 1,347.948 281,383 Investments in subsidiaries Intercompany receivable Affiliated receivable Accounts receivable Inventory Prepaid expenses and other receivables Deposits Additional to deposits AFN Fixed assets, net Total Assets CURRENT ASSETS Liabilities and Shareholders' Equity Liabilities: Compensation payable Intercompany payable Accounts payable and accrued expenses Deferred rent payable Advanced receipts Corporate tax payable Interest payable Loans payable - short term Loans payable - long term Total Liabilities CURRENT LIABILITIES Shareholders' Equity: Capital Stock Retained earnings Current earnings Accumulated other comprehensive income (loss) Total Shareholders' Equity 267,826 434 3,500 412,500 295,001 979,261 684.260 328,561 63,097 6,022 2,842 3,500 99,980 917,635 1,703,021 785,385 1,886,504 (1.780.234) 311,871 1,886,504 (1.484,770) 855,613 418,141 1,257,346 Total Liabilities and Members' Equity 1,397,402 2,960,367 31/12/13 Exhibit 2b Unaudited Consolidated Statements of Income and Comprehensive Income 31/12/12 Sales Revenue 4,132,517 Cost of Sales 1,303,416 Gross Margin 2,829,101 7,491,187 1,632,722 5,858,465 Compensation Salaries and wages Employee benefits Total Compensation PRIME COST 1,309,589 65,676 1,375,265 1,453,836 2,691,881 124,827 2,816,708 3,041,758 2,449,200 273,864 4,004 Other Controllable Expenses Sales, General, & Admin Direct operating expenses Marketing Utilities General and Administrative Repairs and Maintenance Research and Development Total other controllable expenses CONTROLLABLE PROFIT 4,342,500 499,837 24,679 125,102 406,819 104,450 91,272 233,335 98,506 700,982 752,854 1,160,887 1,880,871 351,075 41,800 41,800 753,379 149,007 149,007 0 0 40,332 49,974 Occupancy and Depreciation Expenses Occupancy Depreciation & Amortization Depreciation Amortization Insurance Other (Income) Expense Other (Income) Interest Expense Other expense NET INCOME BEFORE INCOME TAXES Corporate Taxes -38,479 37,186 -21,627 21,804 3,179 - 316,292 4,421 929,804 74,191 NET INCOME 311,871 855,613 Exhibit 2c Unaudited Consolidated Statements of Retained Earnings and Stockholders' Equity 31/12/12 31/12/13 Capital Stock Beginning Balance 1,886,504 1,886,504 Stock Issued Ending Balance 1,886,504 1,886,504 Reinvested Earnings Beginning Balance Net Income Dividends Ending Balance (1,780,234) 311,871 (1,484,770) 855,613 (1,468,363) (629,158) Accumulated Other Comprehensive Income (loss) Beginning Balance Net foreign currency translation Ending Balance Total Shareholders' Equity 418,141 1,257,346 Exhibit 2d Unaudited Consolidated Statements of Cash Flows 31/12/12 31/12/13 311,871 855,613 149,007 (227) 7.782 (135,267) (5,666) (110,847) (17,677) Cash Flows from Operating Activities Net Income Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization expense Other Decrease (increase) in: Affiliated receivable Prepaid expenses and other receivables Accounts receivables Intercompany receivables Deposits Inventory Increase (decrease) in: Compensation payable Intercompany payables Accounts payable and accrued expenses Deferred rent payables Advanced receipts Corporate tax payable Loans payable - short term Interest payable Total Adjustments Net cash provided (used) by operating activities (16,875) (4.597) (45,709) (68,577) 281,383 63,837 5,328 (12,520) 558 (22) 270,000 1,750 240,692 552,563 184,065 1,039,678 Cash Flows from Investing Activities Purchase of fixed assets Leasehold improvements Net cash provided by (used in) investing activities (15,197) (127,015) (142,212) (394,150) (800,244) (1,194,393) Cash Flows from Financing Activities Proceeds (payments) on long-term loan (24,540) 222,634 Net cash provided by (used in) financing activities (24,540) 222,634 Net increase (decrease) in cash and cash equivalents Cash, beginning of period Cash, end of period 385,811 138,975 524.785 67.919 644,092 712,011 The Valuation and Financing of Lady M Confections (Second Report) Based on the financial statements of Lady M Confections and the prospect growth of the firm, you are required to: Forecast the financial statements for the years 2014 till 2019, taking into consideration the assumptions given in the case. Noting that, additional funds needed will be either invested in deposits or will be covered through short term loans. . Define whether the performance of the firm is expected to improve through comparing the previous performance with the expected. You are required to tackle the important points that require improvement. Calculate the FCFs of the firm based on the assumptions given in the case. ) . Working capital increased by $10,800 in 2012, $271,200 in 2013, and was expected to increase by $68,000 in 2014. In forecasting the next five years, Romaniszyn and Tom assumed the following: Annual sales growth would be 20% for 2015, 40% in 2016 (since the World Trade Center location would potentially be opening in late 2015), and 25% for the three years afterward. They assumed an annual sales growth rate of 4% in perpetuity. Cost of goods sold had consistently been approximately 25% of sales but had been dipping in the past two years. They expected it to remain approximately constant over the next five years With rent and labor costs making up a large portion of their expenses, Romanis yn and Tom expected SG&A costs to remain approximately the same as prior years, but to decrease by one percentage point each year. . Although R&D costs had been negligible in the past, they decided they should probably assume some cost in the future as well, albeit only 0.1% of sales. With the prospect of opening a new store in the following year, the two decided to allocate $1,000,000 for capital expenditures in 2015. After that, however, they assumed that no new stores would be opened and capital expenditures would remain approximately 0.3% of sales. Depreciation was expected to rise by five percentage points each year starting in 2014, becoming 100% of capital expenditures in 2019. Additions to intangibles would be zero. Amortization would be zero. The tax rate would continue to be 35%. The two expected the change in working capital to remain a constant percent of the change in sales and behave similarly to 2014 In order to do a discounted cash flow analysis, Romaniszyn and Tom assumed Lady M's weighted average cost of capital was 12%. They chose a 12x EBITDA multiple
