BUSN6020: Corporate Finance & Proforma Financial Statements - Freedom Destinations Case Study - Accounting Assignment Help

Assignment Task

Corporate Finance & Proforma Financial Statements
1.Prepare pro forma income statements, cash budgets, and balance sheets for Quarter 1, 2, 3 and 4 of 2017 that attempt to address Johnson’s concerns about profitability and overuse of financial leverage while helping Byers meet her goal of saving CAD 650,000 to open a new dealership in Kelowna.  A fully automated spreadsheet should be prepared that incorporates any of the operational changes mentioned that will help address Lansing’s concerns and meet Byers goal.

2.Prepare a 3.0 page memorandum (12-point Calibri font, .7 inch margins) that discusses the changes in cash flows, the financial decisions made, and whether the company is meeting it financial goals and lending conditions in Quarter 1, 2, 3 and 4.  A final recommendation section should discuss whether this plan will address Lansing’s concerns about profitability and overuse of financial leverage and whether Byers should proceed with her expansion in Kelowna.

Proforma Financial Statements
Quarter 1
Cash flows before financing, despite Quarter 1 being our busiest quarter for computer sales, consulting, and training, are low compared to the peak periods in Quarter 2 and 3 due to minimal A/R collections from our slowest period Quarter 4.  This has left the Current Ratio at a level that is dangerously close to the 1.5 minimum requirement set by the bank.  This has been made worse by the inability to delay the purchase of storage racks to a later period.  In the future, the company should try not to commit to capital purchases in Quarter 1, as not to put downward pressure on the Current Ratio.  The maximum was borrowed on the term loan to help increase the company’s Long-term Debt to Total Capitalization Ratio towards the desired target of 40 percent and to generate more cash to raise the Current Ratio. 

Quarter 2
Cash flows before financing were at their highest due to Quarter 2 being the second busiest quarter for computer sales, but also because of considerable A/R collections from Quarter 1.  With this cash, the LOC was paid down to zero and the remainder was placed in a temporary investment to serve as a reserve for future expansion in 2006/2007 and/or to fund potential losses or capital investments needed if a national computer chain enters the local market as rumored.  The maximum term loan was negotiated on the vehicle purchase despite the abundance of cash in to raise the Long-term Debt to Total Capitalization Ratio closer to the desired goal, but the company will remain considerably below this target as long as it retains its cash as a reserve instead of paying out special dividends.  Given future uncertainty, a conservative financial strategy is strongly recommended. 

Quarter 3
Cash flows before financing remained high despite a significant reduction in sales because of high A/R collections from Quarter 2 and minimal inventory purchases for Quarter 4, which is our slowest period.  Surplus cash was used to further build up the financial reserve.

Quarter 4
Cash flows before financing are at their lowest level due to minimal sales and A/R collections from Quarter 3 and the need to build up inventories for Quarter 1.  Normally, the company makes heavy use of its line of credit in Quarter 4 to finance the inventory expansion.  It would be illogical to carry a large reserve earning only 2.5 percent and at the same time borrow on the line of credit at 6 percent.  The reserve was liquidated and only a minimal amount compared to previous periods was borrowed on the line of credit to meet the company’s ending quarter cash goal.  The excess borrowing capacity on the company’s line of credit will add to the financial flexibility it needs to deal with the business uncertainty in the coming year and the potential acquisition.  The lower line of credit borrowing will lead to an improved Current Ratio in Quarter 1 of next year – it should be much higher than the 1.5 requirement set by the bank.  The Annual Cash Flow Coverage Ratio requirement of 4.0 was met with little difficulty

This BUSN6020 - Accounting Assignment has been solved by our Accounting Experts at My Uni Paper. Our Assignment Writing Experts are efficient to provide a fresh solution to this question. We are serving more than 10000+Students in Australia, UK & US by helping them to score HD in their academics. Our Experts are well trained to follow all marking rubrics & referencing style.

Be it a used or new solution, the quality of the work submitted by our assignment Experts remains unhampered. You may continue to expect the same or even better quality with the used and new assignment solution files respectively. There’s one thing to be noticed that you could choose one between the two and acquire an HD either way. You could choose a new assignment solution file to get yourself an exclusive, plagiarism (with free Turnitin file), expert quality assignment or order an old solution file that was considered worthy of the highest distinction.