Making a Decision as a Financial Analyst: Analyzing Cash Flow for a New Company
Carlyle Golf, Inc., was formed in September of last year. The company designs, contracts for the L02 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.
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