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ABC Company Financial Analysis

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ABC company is a growing company who produces cedar roofing and shingles. They are grossing a million dollars in profit right now, and are looking to expand and increase their profit margin to three million within three years. While exploring different avenues to increase revenue, the company is looking to build dollhouses out of the scraps from the varying materials they use. In this paper, I will analyze how the company can afford this project to maximize their profits. I will go over product costs, how they can break even on the project, and what the level of return this product will provide to them. Risk Profile The company looks to be in good financial standing at this time. Their cash flow is in decent standing, and they are currently …show more content…

This company has a cash surplus of 180,000 dollars. They have fixed assets for a total of 100,000 dollars and are paying out 100,000 to their stock holders as dividends. In order to increase their cash flow, the company can certainly cut back on their dividend expenses. They can make their stock pay out less, so that they can obtain more profit. The company can afford to finance the doll house project with their current cash flow. If they cut their dividend expenses down, this will help to meet all of the cash demands of production. I feel if the company finds the need for financing of the project at any time, they should choose equity debt. Equity debt will enable them to come up with the funds needed without having to pay back interest. If they chose to use corporate debt, they would have to borrow money from a bank and pay that back plus interest. It is always better to have no interest than pay interest from a business standpoint. Product Cost Cost of production is very important when figuring out how much to sell a product for on the market. We will need to figure out the cost of this item and how much it needs to sell for in order for the company to be successful. With the expansion, the product cost will be 10.80. The doll house project will be used to help absorb fixed factory and sales expenses over a period of time. Consolidated Project …show more content…

When showing depreciation over a straight line five years, we use the purchase price minus salvage. The depreciation amount for this product will be roughly 8400 dollars. Cash flow will remain fairly steady with the proposed sell price of the new products. I feel the equipment if a worthwhile investment for this company because it can help to complete the project more quickly and efficiently, and that makes it worth the small amount of money they will lose. In conclusion, the ABC company is in very good shape to begin this project. I feel the biggest risk for the company is that the product may not sell as well as they are hoping and that this will affect their cash flow. As their controller, my job is to work together with the management team to ensure production is running smoothly and that all the financials are in place. If we are unorganized and sloppy with our numbers, we will be setting ourselves up for failure. I recommend that the CEO begins production on this product, while being mindful that pricing may need to be adjusted in order to increase sales. This company will likely see their three year goal if they steadily produce and sell the new

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