Explorer Brewing Co. Founders: Mandana Amjadi, Jessica Kuiper, & Ari Schjelderup Version D

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1 Table of Contents 1 Table of Contents 2 Company Introduction and Overview 3 Income Statement 4-5 Balance Sheet 6 Statement of Cash Flows Statement of Cash Flows Ratio Analysis Business Analysis Projected Income Statement Actual vs. Predicted Earnings per Share Evaluation Journal Entries T- Accounts 28 FIFO Chart 28 Bonds Chart!1

2 Explorer Brewing Co. Founders: Mandana Amjadi, Jessica Kuiper, & Ari Schjelderup Version D Beer has always been a passion of our company s founders. They grew up around and enjoying craft beers, which sparked their idea to open their own brewery. One loved to travel and take what she learned from those cultures and incorporate it into food and drink. That s how Explorer Brewing Company started, as an idea to give people a taste of different countries. We give you a unique dining and drinking experience that takes your taste buds on an exploration around the world. This is done by making unique craft beer and food that pulls flavors from other cultures. Enjoy taking a trip without the travel. Cheers!!2

3 Income Statement!3

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5 Balance Sheet!5

6 Statement of Cash Flows 2013!6

7 Statement of Cash Flows 2014!7

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9 R A T I O A N A L Y S I S!9

10 Earnings Per Share- This is a contributor in how our company prices its shares because it shows how the money brought in by shares is distributed to the shareholders and indicates profit. Our numbers show that we decreased significantly, but increased back to our original percentage. Price-Earnings Ratio- Comparison of our companies share value to how much were earning on that share. Our numbers show a decrease in the last year, but that is because it looks like there is an inverse relationship with earnings per share. Return on Equity- How much equity we have in comparison to net income. Our numbers show an increase, more dramatic, over the last 3 years. Working Capital- How much current capital we have in case of liquidation. Our numbers show an increase, more dramatic, over the last 3 years. Current Ratio- How many times we can pay off our current liabilities. Our numbers show that we can pay off our liabilities 2 times over. Quick Ratio- A truer representation of how many times we can pay off our current liabilities because it doesn t take into account inventory. Our numbers show that we can pay off our liabilities 1 time over and has increased over the last 3 years. AR Turnover- How fast our company collects our accounts receivable and how much of our sales haven t had cash collected for yet. Our numbers show that only 3% of our customers haven t fully paid us. Inventory Turnover- How many times our inventory is rotated in a year. Our numbers show that we turnover inventory about 3 times per year, which is a significant increase from last year. Gross Profit- This is the basic earnings from selling our merchandise. Our numbers show that we have increased since last year and are the highest we ve been thus far. Gross Profit Ratio- This is how much money we have left over from revenue after taking into account COGS. Our numbers have gone down from last year but this is because of changes in our business. Operating Income- What s left over after operating expenses and COGS. Our numbers show a significant decrease over the last 3 years due to expansion.!10

11 Operating Margin- The money we have left over after the basic operations of our company. Our numbers are steady until this last year because of growing our business. Debt-to-Equity Ratio- How much debt our company has compared to how much is invested, put in, and kept in the company. Our numbers show a high increase because we are trying to expand our business. Book Value Per Share- If the company were to shutdown, this represents how much the shareholders would get back after debt and liquidation of assets. Our numbers show a tiny decrease over the steady rate from the last 3 years. Cash Ratio- Indicates how quickly we can pay off our current debts. Our numbers show an increase meaning that we can pay off our debts faster, using our most liquid assets.!11

12 Business Analysis!12

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15 Overall, business is all right. This year, our goal was to expand, but we may have done so too quickly. The numbers make it appear that we have succeeded in expanding successfully, when looking at our income statement and balance sheet, due to the increase in profits. On the other hand, when looking at the vertical analysis above, we see a greater cost of goods sold, lowering our gross margin. The vertical analysis does a better job of conveying truer representations of actual profits per account because it uses percentages rather than actual dollar amounts. This analysis shows a greater net income from the past three years, mostly because of other income, like the sale of equipment. To raise net income, our company sold a large portion of land and equipment, which raised the total by 26%. This means that our core business is not as profitable as the company should be. The vertical analysis on the balance sheet also tells the same story. Issuing bonds and taking out long-term debt achieved the large increase in cash. When looking at the statement of cash flows, the same principle can be seen. We earn more money from the investing and financing portions of the statement, than from the operating section, which is not sustainable over time. The ratios highlight some important aspects of business activities as well. Starting with earnings per share, we see an increase from last year, but not as Current Ratio 2014 Cash Marketable Securities Receivables Other Current Assets Inventory Current Liabilities!15

16 large an increase as we would have liked. Price per share increased, making it seem like the number would be higher. On the other hand, it makes some sense because of how much we tried to grow the business this year. Our working capital went up significantly because our current assets went up by taking out long-term debt. The current ratio shows that we can pay off our short-term obligations two times over. This can be seen in the chart on the opposite page. This is good, but it decreased from last year, before we took out a lot of debt, when we could pay off the debt three times over. Part of the reason that this number is so high is because we held a lot inventory. We can see this in our quick ratio because it does not include inventory with the rest of the current assets, making 2014 higher than the last two years. In the cash ratio, we see that in 2014 we are able to pay off the short-term debt because our cash and short-term investments were enough to cover the amount. In 2012 and 2013, the cash ratio was below 1, meaning that we would not have been able to cover our short-term obligations with just cash and cash equivalents. The inventory turnover rate has just about doubled in the last year, meaning we turn over our product twice a year instead of just once like the previous years. This is good because it means that beer sales are increasing and we are cycling through our inventory faster, resulting in no bad beer. Finally, our debt-to-equity ratio reinforces our observations above that we have too much debt. We are hopeful that the expansion of the business will lead to our ability to pay off all long-term debt in the near future. To sum everything up, our business isn t doing terrible, but we have a lot of work ahead of us. Our hope is to cut back of spending, while still maintaining sales. We want to make our core business the most profitable piece of the company so Explorer Brewing Company is sustainable for a long life of bringing beers and cheers to all who visit.!16

17 Projected Income Statement 2015!17

18 Revenue: Given as $ COGS: Found by looking at the last three years and dividing the revenue by COGS for each year and getting 3.2 for 2012, 2.7 for 2013, and 1.7 for We then rounded each up or down resulting in 3, 3, 2. So we came to the agreement that 2015 COGS would be 2.5 of revenues /2.5= Wage Exp: Because we have fewer sales, we probably let people go this year and revenue between this year and last year gives us a.82 drop ( / ). So, because of the layoffs and the difference in revenue, wages will be expensed using the.82 drop multiplied by last years wages or (505000*.82) for the first part of the year and (546000*.82) for the later part of the year = Dep Exp: Depreciation on the truck purchased last year for (156000* 2/5). Depreciation on the office furniture purchased last year for Depreciation on equipment for the year is the same as the year before because we did not sell or buy any of it = BDE: A/R from last year *.82 drop= = Insur Exp: We made fewer sales, thus decreasing the amount of accidents that occurred, so last years insurance exp *.82 drop= Rent Exp: Leased warehouse space in 2014 for 2 years, so exp this year. Utility Exp: We made fewer sales, thus used fewer utilities, so last years utility exp 61000*.82 drop= Adv Exp: Prepaid in 2014, so 4358 exp in Off Sup Exp: We made fewer sales and cut the workforce, thus we used less office supplies, so last years office supplies exp 21800*.82 drop= Fuel Exp: We made fewer sales, meaning less travel, so last years fuel exp 9900*.82 drop= Amm Exp: Constant for the 10 year life of the patent at Gain: Following the trend over the last 3 years, we sell then don t sell, then sell. So this year is a don t sell year. Int Inc: Last years cash of *.82 drop= Take the average = / 2= * the interest rate for the year.04= !18

19 UHG: Increases slightly each year because of a growing market so = Int Exp: Land n/p interest from 2014 for from the bond chart recurring interest on a long- term n/p = Bon Int Exp: from the bond chart started last year. Loss: Following the trend over the last 3 years, we sell then don t sell, then sell. So this year is a don t sell year.!19

20 Actual Vs. Predicted Earnings Per Share Evaluation Our actual earnings per share is much lower than the predicted $.12, but that is because of how much we have tried, and succeeded, to grow the company in the last year. We could have met the predicted amount, but this would have meant sacrificing more earnings in the future by staying small. Growing was the best thing to do for our company right now because staying at the same level hurt our overall business the year before, as our numbers show. This is evident because in 2013, when we were not expanding, our earnings were actually much lower than they were this year, so by adding to the company, the shareholders profits will grow and eventually meet the predicted numbers.!20

21 Journal entries!21

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25 T - A C C O U N T S!25

26 T - A C C O U N T S!26

27 T - A C C O U N T S!27

28 FIFO Chart Bonds Chart!28