Carlyle Golf, Inc., was formed in September of last year. The company designs, contracts for the manufacture of, and markets a line of men’s golf apparel. A portion of the statement of cash flows for Carlyle follows:
CURRENT YEAR
Cash flows from operating activities
Net income ............. $(460,089)
Depreciation ............. 3,554
Noncash compensation (stock) ..... 254,464
Deposits with suppliers ........ (404,934)
Increase in prepaid assets ....... (42,260)
Increase in accounts payable ...... 81,765
Increase in accrued liabilities ...... 24,495
Net cash flows .......... $(543,005)
Management expects a solid increase in sales in the near future. To support the increase in sales, it plans to add $2.2 million to inventory. The company did not disclose a sales forecast. At the end of the current year, Carlyle had less than $1,000 in cash. It is not unusual for a new company to experience a loss and negative cash flows during its start-up phase.
Required:
As a financial analyst recently hired by a major investment bank, you have been asked to write a short memo to your supervisor evaluating the problems facing Carlyle. Emphasize typical sources of financing that may or may not be available to support the expansion.