Marion Boats Case Study

...

---------------------------------------------------------------

Analytical Point – Cash receipts and disbursements

[pic 5]

It is important to show the statement of cash receipts and disbursements because the income statement does not always reflect major changes in a company’s cash position. For Marion Boats they are currently not in any cash flow troubles since they are presently spending less than what they are making or receiving. These numbers were calculated from going down the cash column and taking a summation of all of the cash flow in then subtracting a summation of all of the cash flow out.

---------------------------------------------------------------

Analytical Point – Indirect and direct cash flow statement

[pic 6]

[pic 7]

Using either the direct or indirect methods of cash flow statements, the main difference is just how cash flow from operating activities are presented. For the indirect method the income statement needs to have already been prepared to utilize the net income data. It also only takes in to account the sum total of the accounts receivable and accounts payable. While the direct method is a great approach the cash flow if there are not excessive cash transactions, it can be quite lengthy if there are. That is why the indirect method is typically best because of its use of accrual accounting, making it easier to decipher for reporting purposes.

Conclusion

There are several things to note for assumptions on projected growth of Marion Boats, Inc. First, while Bill has a less of an initial investment than Fred does and because he did not start working full time at Marion Boats, Inc. until March 30, his impact on the company is likely to increase with sales that he is likely to generate. For the year 2006, Bill and Fred need to focus intently on increasing sales. However, they need to be careful not to get to carried away with their sales and control their growth this coming year. Reason being, they still have $153,000 in COGS that they are going to have to start paying on after the first quarter. Then, add to that, an increase in any COGS that are incurred with additional sales. The worst thing that could happen is if they start to over leverage themselves on their liabilities and not have enough liquidity in their assets to cover their liabilities. Currently using the quick ratio which is the only financial ratio used, taking the current assets minus inventories total then dividing by current liabilities, their quick ratio is 1.52. Again, meaning that for every $1 in liabilities, they have $1.52 in liquid assets. This puts them in a positive financial position with their startup company. However, if they do not control their growth in sales especially related to the COGS, their ratio could be in danger of going below 1 which would mean they have trouble covering all of their short-term obligations.

---------------------------------------------------------------

References

President and Fellows of Harvard College. (2012). Marion Boats, Inc. Harvard Business School Publishing, Harvard Business School. 1-2.

...