Wicked good cupcakes financials

Running head: UNIT 1 ASSIGNMENT: SHARK TANK: WICKED GOOD CUPCAKES 2

UNIT 1 ASSIGNMENT: SHARK TANK: WICKED GOOD CUPCAKES 2

Introduction

Wicked Good Cupcakes was started by mother and daughter in 2011 in Cohasset, MA. The company sells its products both in – store and online markets. Wicked Good Cupcakes is a successful Shark Tank Venture. This paper is focuses on the analysis of its financial statements from the except given for the financial year 2011 and 2012.

1. During 2011 how much cash did Wicked Good Cupcakes collect from sales?

Net Sales = Cash Sales + Credit Sales

2011 credit sales are shown by accounts receivables for the year 2011 = $8,700

Net Sales for 2011 = $78,200

Hence,

Cash sales = Net Sales – Credit Sales (Accounts Receivable)

= $78,200 - $8,700

= $69,500

Therefore, Wicked Good Cupcakes’ cash sales for the financial year ended 2011 was $69,500

2. During 2011 what was the cost of goods produced by the company?

The cost of goods produced by the business refers to the total amount of goods produced in the financial year and were sold or unsold. Therefore, to obtain the cost of good produced, we use sum the cost of goods sold (COGS) and the cost of ending inventory (Finished Goods Inventory) (Weygandt, Jerry J., 2013), i.e.

Costs of Goods produced = COGS + Ending inventory

= $50,200 + $2,900

= $53,100

3. Assuming that Wicked Good Cupcakes neither sold/salvaged assets during the year, what were the capital expenses during 2011?

The expense in capital is recorded by the depreciation expenses. For Wicked Good Cupcakes, the depreciation expense recorded is for the fixed assets. Also, capital expense represents the amount the business uses to acquire, improve and/or maintain fixed assets. Therefore, for Wicked Good Cupcake, capital expense is the depreciation of fixed assets. We have then that;

Capital Expense = Depreciation Expense + Capital Loss

Capital Expense = $6,100, since there is no capital loss indicated

4. Assuming that there were no financing cash flows during 2011, using the information from above, what was Wicked Good Cupcake’s cash flow from operations in 2011?

Cash flows from operations is determined by evaluating the net income the firm has from the income statement, the non-cash activities and changes from current assets and current liabilities (Choi, W., Han, S., Jung, S. H., & Kang, T., 2015). From the information given, we have;

Net Income

$14,200

Adjustments to reconcile net income:

Depreciation Expense

$6,100

Changes in Operating Assets and Liabilities:

Increase in Accounts Receivable

($3,000)

Decrease in Inventory

$1,000

Increase in Accounts Payable

$500

Cash Flows from Operating Activities

$18,800

Therefore, cash flows from operating activities for Wicked Goods Cupcakes was $18,800 in the financial year 2011.

5. Does your analysis of these selected financial data justify O’Leary’s interest and partnership in Wicked Good Cupcakes? Explain.

Based on the information provided and the analysis obtained above, it clearly justifies the interest of O’Leary’s had to partner with Wicked Good Cupcakes. This is because the business has positive cash flows from its operations, working capital (current assets – current liabilities) as well as positive net profit margins. The business is therefore profitable and thus viable to any investor to put his/her funds in the business (Weygandt, Jerry J., 2013).

6. Based on the analysis above; if you were a Shark Tank investor what would your offer be? Explain the rational for your offer.

Given that profit margin of the firm is approximately 18% of the net sales, the best offer that I would make I will make is $120,000 at 13% interest and allow the firm to reserve 5% for revenue growth. The total investment will be approximately $923,076. The rationale behind this proposal is that the revenue is growing at a 18% per year, hence the business would not be able to offer more than 18% interest. This would allow for capital expansion and growth of the firm (Paul D. Kimmel, Jerry J. Weygandt & Donald E. Kieso, 2015, 752).

References Choi, W., Han, S., Jung, S. H., & Kang, T. (2015). CEO's operating ability and the association between accruals and future cash flows. Journal of Business Finance & Accounting, 42(5-6), 619-634. Paul D. Kimmel, Jerry J. Weygandt & Donald E. Kieso. (2015, 752). Accounting Tools for Business Decision Making(6th ed.). Wiley. Weygandt, Jerry J. (2013). Accounting Principles. 11th ed. Hoboken: John Wiley & Sons.