Your team has been hired to provide financial analysis for a start-up company, Bobble in Style, which produces customized bobbleheads. The bobbleheads are made out of less rigid materials and are more true to life than those of competitors. The company inventors, Mr. and Mrs. Lee, are going to pitch their idea to Shark Tank in a few months, but first they need to have a better understanding of the business financials. The Lees are already creating and selling their product from their home-based office and work area. They know what costs are involved with making the bobbleheads on a small scale, but hey dont have an understanding of financial figures beyond basic costs. They need you to make sense of various financial figures for them.

1.: Explain the purpose of each financial statement.

Financial Statements:

Develop an Income Statement for 20XX, Cash Flow Statement for 20XX,

and Balance Sheet

as of the end of 20XX

based on the data provided below for year 20XX. All

sales are collected when the sale is made and all expenses are paid when the expense is

incurred. Explain the purpose of each financial statement.

a.

Income Statement Data for 20XX:

Units produced and sold = 420

Sales ($80 per unit selling price) = $33600

Cost of goods sold ($30 per unit, all variable costs) = $12600

Labor = $0 (Mr. and Mr. Lee were the only ones working and did not pay

themselves)

Advertising fees =$2000

Bank fees = $150

Phone/internet = $1200

Shipping ($3 per unit) = $1260

Utilities = $900

Office supplies = $800

Interest expense on note payable = $350

Depreciation expense (straight line) = $800

Income tax rate = 26 %

b.

Other Financial Data for 20XX:

Proceeds from sale of equipment = $3000. The equipment originally cost $1000

and had accumulated depreciation of $200.

Purchase of equipment = $1600 (The machine is purchased on the last day of

20XX so no depreciation expense is recorded.)

Repayment of note payable = $5000

Consider any data relevant from the income statement.

c.

Balance Sheet Data for

Beginning of 20XX

:

Cash and cash equivalents = $10000

Accounts receivable = $0 (Cash is received at time of sale)

Raw materials inventory = $10500

Equipment = $5000 (This includes the $1000 cost of the equipment sold in

20XX).

Accumulated depreciation = $1,000 (This includes the accumulated depreciation

of 200 for the equipment sold in 20XX.

Accounts payable = $0 (Cash is paid at the time of purchase.)

Note payable = $5000 (This is the note payable which is repaid in 20XX)

Common stock = $15000

Retained earnings = $4500

2.

Financial Ratios:

Calculate the following financial ratios and explain the meaning of the results.

a.

Net Profit Margin

b.

Quick Ratio

c.

Debt-to-Equity Ratio