Case #$1$

Organizing Information

BelleCo Case Study

Background

Belle has been managing a small company making signs for the last five years. The company has grown significantly in this time. The company has purchased numerous assets, expanded the number of products, entered new markets, and has consistently expanded its customer base. When Belle started the company, she maintained a ledger with most of her transactions, and this was sufficient for her to get an impression of how the company was doing, or so she thought. She had several friends who also ran their own businesses, all of which used similar ledgers.

More recently, however, Belle has become concerned about her finances. Whether it is due to the growth of the company or changing economic conditions, she has begun to feel that she needs a better understanding of how well her business is doing. She took a class to try to help her with her finances and realized that she needed to apply some of the principles she learned in graduate school to better understand Belle Co$$s financial state.

Her first undertaking is to compile information from her ledgers.

Information

Belle realized the need to take stock of everything her company had to offer. She was surprised at how much she had invested in it$,$ given that she had started with nothing five years ago.

She went through her old bank statements and found that her cash had increased over the years, which she thought was good news. She did the same for her inventories. Collecting the information for her raw materials, packaging, and finished goods that she had in her warehouse, she came up with the following summary table:

YR $12345$

Cash $$9,586\mathrm{.}10$ $$23,374\mathrm{.}98$ $$37,963\mathrm{.}65$ $$30,994\mathrm{.}39$ $$51,953\mathrm{.}46$

Inventory $$28,000\mathrm{.}00$ $$56,000\mathrm{.}00$ $$84,000\mathrm{.}00$ $$112,000\mathrm{.}00$ $$96,000\mathrm{.}00$

From her tax accountant, she learned that she depreciated her assets by utilizing MACRS. Her building and land $($$$400,000)$ are depreciated on a $39-$year MACRS nonresidential real property schedule. Her manufacturing equipment $($$$260,000)$ has a recovery period of $7$ years, and her delivery vehicle $($$$35,000)$ is depreciated based on a $3-$year schedule. Two years ago, she invested in an expansion to her equipment valued at $$130,000,$ which is depreciable on a $7-$year schedule. She has also invested in computers, automation equipment, and office furniture over the years; according to her accountant, the value for these items each year are:

YR $12345$

Other Items $$2,000\mathrm{.}00$ $$3,500\mathrm{.}00$ $$4,700\mathrm{.}00$ $$5,200\mathrm{.}00$ $$5,000\mathrm{.}00$

These miscellaneous items will depreciate on a $3-$year MACRS.

Surprised at the values that she was finding, she decided to dig deeper through her ledger and other notes. She discovered that her transactions had significantly increased, and all told, the amount of money she owed for operational expenses and COGS that she had already ordered or received was a lot more than she had thought. Going through her notes, she added the amounts that customers owed her for goods she had already delivered.

Accounts $12345$

Receivable $$2,400\mathrm{.}00$ $$2,600\mathrm{.}00$ $$3,800\mathrm{.}00$ $$5,400\mathrm{.}00$ $$9,800\mathrm{.}00$

Payable $$10,000\mathrm{.}00$ $$12,000\mathrm{.}00$ $$15,000\mathrm{.}00$ $$15,500\mathrm{.}00$ $$17,000\mathrm{.}00$

She called her bank, and they gave her a detailed breakdown of her debt and line of credit. Belle was very nervous about borrowing money, but it became necessary to purchase her present equipment. Five years ago, she had borrowed $$500,000,$ at $4\%$ interest repayable over ten years. According to the bank, she also had a line of credit, which was opened three years ago, that presently stood at $$50,000$ and had balances in the preceding years of $$50,000$ and $$70,000($first year$).$ The interest on the line of credit is $6\mathrm{.}5\%.$ There is no principle included in the required payment.

Information on Operations

BelleCo has shown strong sales growth. In its first year of operation, it sold $$200,000.$ Since then, sales have grown steadily by $21\%$ year over year. Belle expected this growth as a start$-$up company in an untapped market. She hopes to maintain this growth for several years before the market flattens.

Belle compiled some further information based on her operation. She found that the raw materials and other direct costs $($COGS$)$ involved in producing her product had increased but recently fallen after investing in Lean initiatives. Similarly, her sales expenses and G&A costs have increased. Belle summarizes these costs.

YR $12345$

COGS $$93,000\mathrm{.}00$ $$115,000\mathrm{.}00$ $$146,300\mathrm{.}00$ $$164,579\mathrm{.}00$ $$155,340\mathrm{.}00$

Sales Expenses $$15,987\mathrm{.}00$ $$20,458\mathrm{.}00$ $$23,390\mathrm{.}00$ $$27,489\mathrm{.}00$ $$25,458\mathrm{.}00$

G&A $$23,456\mathrm{.}00$ $$31,345\mathrm{.}00$ $$39,876\mathrm{.}00$ $$48,767\mathrm{.}00$ $$53,254\mathrm{.}00$

The accountant also told Belle that her tax rate is $29\%.$

Analysis$/$Rubric

Belle hopes to gain insight into her company by organizing and structuring all this information.

$1)$ She would like to start by putting together a standard set of financial statements

a$.$ Develop the Amortization Table