Question

Case Link Question (3) Directions Click the Case Lint above and use the infrnation provided in Revolatienary Designs, Inc, Parts A this question: What is the impact of sales growth on Rrvolutionary Designs' barrawing needs? The busiess had buph long em sles growh anda weasra sles pesk, which neduces ts nee toro The business has epeced ong ter sales grech and has a gencond sales enk,boh odwc are potebreingcses The busness hed ne longem sales growich and no seasural sées pea, sa there is no borrowing causet ty sales gowth The business has seasonal sales peaks, whch ae a ptential borraving caue utt hars no long oem saies gowh. 121 A Part B Revolutionary Designs, Inc. Revolutionary Designs, Inc. Balance Sheets (Commen Sizel 2073 * 2012 % 20a s Aceounts recervable 40 172 e process insted poods 409 13.9 2,00 3. 1178 40.0 871 341 30 . 1.9 74.7 Gross fond wssets Accumutatod depreciation 612 a4o Net fixed 582 1T.8 4 13 Papents and trademarks 40 12 20 0.7 LIADILITIES AND EQUITY 1 . s 19 0.6 19 a8 775 28.4 Current portion-LTD Notes payable Note paysele Juck Newsome-subosdinated ccounts payable 5 810 24.8 200 1 1063 323 288 88 11 0.3 2.381 73.0 200 T8 551 218 155 1 12 0.5 2 658 834 28,4 20 TO 20 0. Total ourrent llabiatles 109 58 3a1 175 68 182 5.o 3 0.1 Long-term dect Other ioncument lisbistiea 3 o.1 Total Wablilities 705 24.0 715 219 Owners' equity 2.937 100.0 55 100.0 3.261 100.0 TOTAL LIABILITIES AND EQUITY 4 Commercial Loans to Small Business Online Part B Revolutionary Desi Revolutionary Designs, Inc. Income Statements In $000a) rears Ended Decersber 31 20Y1 6.515 7.506 8.010 Cont of ooos sok Saling genera imerest esperse Lorids on dsposition of fived assets Other esperse I and adminsiative aspenses 18 04 Net Incomme before taxes Prowision for income aos 100 134 Net income Revolutionary Designs, Inc. 5 Omaga Perfamance Copostoe, A Rights Reserved Part C Revolutionary Designs, Inc. Revolutionary Designs,Inc. Summary GAAP Statement of Cash Flows (Indirect December 31 cath New trom oparating acvites 2T on disposition of feed wosers changes i 348 Accounts eceable Other current Potents and brsdemarls Psyables cam 219 161 Net eash pravided by/used in operations Cash flow from investing activities Purchsses of fhed assets Cash peoceeds of fised asset dispoeitions Net cash used in investing Cash flow from finaneing actlvities Gross prooeeds of short-tem det Repsyments of long term dett Gross proceeds of long-term dett Cash dividends paid 35 19) 12 Net cash provided by financing 80 Net change in cash and equ valents Plus: Cash and equivaients at beginning of year 310 Cesh and equivalents at end of year Memo items Cash paid for interest Income taxcs paid $ 98 100 6 Commercial Loans to Small Business Online Part C Designs, Inc. Quick Cash Flow (in so00s) Less Ending working inveament Change In working Investment Beginning working iewestment Less: Endng warking investmant Equals: 3 Werking imesstreent Are any changas in incoma taxes payabke, intenest payable, prepaid expenses expenses, imasimants, or Revolutionary Designs, Inc. 7 Part C Revolutionary Designs, Inc. Cash Flow Summary (in $000s) Lice Nunber 20 from seles eent of gpods sold Cash paid for product on Cash from tradng ectivties Cash 338A expense Other inoeme (exgense) Income tax Tases paid and othar iscome Interest expense A Intwrest payable Dvidunda declared or Current portion longrm dett iprior Cash oter debt Fbond asets Investments a hlangieles Cash paid for plant aned Financ ry-surplusrequrument Shon-term dest nores peyable) Preferred stock ge..tm.ası ⑦į 137) à Common stcck Total eeamal trandng Financing surpius frequiNI) + (26) Totsl edumal fran PROOF: △ Cash and marketable 8 Commercial Loans to Small Business Online Part C Revolutionary Designs, Inc. Financial Drivers Worksheet actor change in Sales 'see $8010 SSTI 54,328 $1,1Te Caah cods $63M Cash COS change % tmea Fegiing entry 5871 1441 Eouas: impaxt on imventery caah COOS change % 634 58) TOTAL OPERATING CYCLE MPACT OF CHANGE IN 174)- Cash Impact af Change in Turnavers Times Change in ARDOH Equab Cash impact of change in ARDoH Average dally cash C03s Equals: Cash impact of change in INVDO Avarage daly cash COGS 517 47 Times:Change in APDOH Equals: Cash impact of change in APDOH 226 TOTAL IMPACT OF CHANGE IN TURNOVERS 529 Cash Impact of Change in Margins COGS 39% Change n cash cops as % saer Equals Cash impact of chang i 9477 T 858 108 Cash SG&A Cesh SG&A as salos in prior yar Cash SG&A as % sales in mis rear Change in cash SGSA aa % sasi Times Sales this 3 t change in $78 TOTAL IMPACT OF CHANGE IN MARGNS Cash Impact of Change in Fixed Assets Beginning net xed ssets Loss: Osprecistion expanse for this year Equals: Expected ending net fieed assets $824 $588 Actual endirg net flxed assets Less: Expected endng net fued assets Equal, Cash impact of charge n feed assets 3582 5598 1536) : TOTAL IMPACT OF CHANGE IN FIXED ASSETS Revolutionary Designs, Inc. 9

Answer 1

The correct Answer is Option B because the company has seen sales growing and it is varying season. When there is sales increase, the accounts receivables also increases and therefore it causes the working capital to shring thus needing borrowed funds and season variations also lead over stocking of inventory to meet the seasonal demand thus leading to increased working capital and in turn borrowing requirements.