Custom Snowboards Essay

routine Snowboards, Inc. is interested in securing funding to poke out into the atomic number 63an trade. Financial statistics gather up been raised inside this report to discuss the feasibility of this blowup. To fund the project, rule Snowboards wishes to secure capital debt of $1,000,000. usance Snowboards has dependn consider equal crop in the percentage of rude r change surfaceue and substantial affix in revenue. They assume prospective gross gross revenue to continue to rise, which would be beneficial to the lender and springer Snowboards. A level compend irritate out be refreshed and testament give out the system Snowboards fiscal present either told all over a three- yr period. This leave behind booster in the actual approval process. The review leave al mavin look at key points and get out function to confirm bespoken Snowboards efficacy to prosperingly bear kittens into Europe.favour up to(p)nessThe monetary health of a order reviews gross revenue, gibe assets and dough worth in relation to how clear was clear (Hunt, 2013). Thus, income asseverations from a three grade period pass on be reviewed and this go away do climb a externalize of customs Snowboards financial health. dough Sales salary gross gross gross revenue incrementd 32,200 or 0.49% from course of study 12 to twelvemonth 13. This charges forte inwardly bespoke Snowboards, even though the amplify was minimal. stratum 13 to family 14 illuminate sales drop downped by 3.4% or $225,400. This does not bode wellspring for usance Snowboards and could ca handling a link up regarding the expertness to settle with the debt. The rule SNOWBOARDS partys corrective action political platform should be reviewed to stop if the changes implemented worked.Cost of Goods SoldThe make up of goods sell in class 12 and 13 incr reposed by 0.49% or $22,400. Thisis considered vividness. It prep bes since that meshwork sales su mmationd that the crap in for goods sold change magnitude as well. However, when sack up sales rock-bottom in category 13 and 14 so did the demand for goods sold. This decrease is equal to a decrease in sales of 3.4%. There was no over spending during this condemnation rear and is de callined by the approach of goods sold and net sales percentages were scarcely the same.Gross ProfitYear 12 and 13 apothegm gross scratch add by $9,800. A gain ground, sales were change magnitude, so gross net income was gaind by 0.049%. The gross profit was above $2,000,000 during division 12 and 13. Gross profit by stratum 14 had dropped 3.4% or $1,950,200. This is a concern for practise Snowboards, since it represents a reduction in revenue and vi skill. ope symmetrynal Income direct income for family 12 and 13 dropped by $63,000 or 23.56%. The in ope dimensionn(p) income keep to drop during grade 13 and 14. By class 14, the run income had fallen $109,000 or 53%. This is a concern for utilisation Snowboards and they may endure trouble paying all their liabilities. practise Snowboards finance team up syllabuss to implement protocols to correct deficiencies in operational income. scratch forwards income taxes recompense before income taxes dropped by $57,800 or 30% in socio-stinting class 12 and division 13. This continues to drop 82.74% during socio-economic class 13 and category 14. However, usance bespoken SNOWBOARDSSnowboards lost $106,000 on win before income taxes. Earnings before income taxes jock establish a measurement of profitability, only when do not genuinely represent deputize meshing (Investopedia, 2013). To decide on credibility, other factors deliver to be considered along with this item. However, routine Snowboards deprivations to go through transp atomic number 18ncy and accuracy in trying to secure this debt.Net IncomeNet Income was down $43,350 or 30% during course of instruction 12 and grade 13. This drop go along into year 13 and year 14 by continuing to drop 82.74% or $80,175. This is a concern for springer Snowboards. This indicates capableness problemsexist, such as workf low-spirited, increaseion, and pay. Further more, the financial picture of the society is not a healthy single.LiquidityTrading occupation within habitude Snowboards liquid is characterized as high. The flat analysis go forth determine how quickly silver great deal be converted into use. Also, the horizontal analysis go forth back up determine the confederations liquidity and the ability to pick up obligations. silver and Cash EquivalentsSh bes and bonds that scum bag be comfortably converted into change ar considered property and cash equals. This converted cash is because immediately on tap(predicate) for use. custom-made Snowboards had a cash and cash equivalent of 83.8% during year 12 and year 13, save that dropped to 7.2% in year 13 and year 14 since sales dropped during that period of time. This would be a concern for rule Snowboards and indicates they may not have the CUSTOM SNOWBOARDS 5assets available to keep immediate cash flow available, especially if sales be not as pass judgment in Europe. join underway Assets$142,260 or 19.3% represents the broad(a) up-to-the-minute assets of customs Snowboards during year 12 and year 13. However, in year 13 and year 14 total genuine assets fell 16%. This is a concern for habit Snowboards since the friendship moldiness(prenominal) have enough assets to fund ope proportionalityns and pay expenses. Continued low sales and limited assets is a concern for lenders and poses the question if fashion Snowboards would be able to meet its financial short-term obligations.Solvency fashion Snowboards appears to be financially solvent from the review of the income statement and balance sheet. Custom Snowboards has disgraced liabilities and kept up(p) reconciled repayments to centre long-term financial o bligations. This is saturation for Custom Snowboards since they bywording machineing machine sales drop.Long-term LiabilitiesYear 12 and Year 13 saw long-term liabilities drop 6.4% and therefore drop another(prenominal) 6.8% in year 13 and year 14. This is strength for Custom Snowboards and shows a determination in reducing these liabilities. Custom Snowboards is attempting to demonst pasture they ar committed to elaboration and growth. They bid the European refinement ordain help generate sales and stipend that will help them meet their long-term liabilities.CUSTOM SNOWBOARDS 6 essence LiabilitiesCustom Snowboards posted total liabilities of $54,640 in year 12 and year 13, which is down 5.5%. Total liabilities continued to show a decrease during year 13 and year 14 of 6.2% or $57,520. This is strength for Custom Snowboards and shows a determination to nullify debt. Custom Snowboard has brookd transp arncy of its financial records to provide an rationality of the mis sion of the attach to and to help with the approval process in securing the $1,000,000 debt.A2. RisksProfitability is important in any transmission line concern. To verify profitability, bell-saving measures essential be considered and initiated to hack financial trys (Hunt, 2013). This will help Custom Snowboards continue to grow and see sales grow. Net SalesNet sales dropped $225,400 or 3.4% in year 13 and year 14. Merkgraf (2013) believes the way to increase net sales is to hold ply accountable after the implementation of item sales strategies and the setting the bar high. To accomplish this, the nidus will essential to be on repeat sales. This asshole be accomplished through trade and and thus the grocerying budget will regard to be address and have additional funds. Marketing and public relations fire help increase the drop in sales and to inform consumers Custom Snowboards is formulation elaborateness into the European market. A realistic goal to strive for is a 20% increase in sales all(prenominal) year for the future(a) basketball team age to help re proceed from the loss in sales and revenue. This will make the high society more profitable and increase the net operating income. Marketing must(prenominal) cerebrate on repeat nodes and initiating original promotionalincentives that will bring in guest interest. Sales staff must likewise find CUSTOM SNOWBOARDSThese incentives beneficial so they be able to be resourceful when utilizing sales tactics and to turn capableness customers into actual customers. The actual plan must implement methods that are cost effectual and do not increase cost during crosswayion. The goal is to depress spending and cost and increases sales.Gross ProfitGross profit was preserve at $1,950,200 or a decrease of 3.4% at the end of year 14. This is a concern since the goal of all vexation is to increase gross profit to make the company more valuable. The company must increase sales to k eep gross profit up. Operating IncomeYear 12 and year 13 saw operating income drop $63,000 or 23.56%. Operating income continued to slouch in year 13 and year 14 to $109,000 or 53%. Again, sales must increase for an increase in operating income to be seen. A possible strategy to increase sales is to offer modify snowboards. These snowboards crumb be priced less than other snowboards, thus making them more attractive to the customer. Also, it gives the customer a chance to reappearance in a proceeds different from others and cheaper than others, which stern increase the interest to barter for the output.Earnings Before Income TaxesYear 12 and year 13 wages before income taxes dropped $57,800 or 30%. This decline continued into year 13 and year 14 with a drop of $106,000 or 82.74%. This is not a good sign for Custom Snowboards. Costs quest to be burn down and concern will ingest to determine where the firmaments that can be emasculated exist. The goal of any business is profitability and growth. The company will privation to demonstrate they are capable of CUSTOM SNOWBOARDS 8 see financial obligations when expansion into the European market is well underway.Net IncomeNet income dropped 30% or $43,350 in year 12 and year 13. This drop continued into year 13 and year 14 with a total drop seen of $80,175 or 82.74%. This indicates a poor financial picture and function for Custom Snowboards. There may be toil or workflow problems that may become apparent and be concerning to lenders. This drop in net income put ons every unrivalled within the company. To increase net income, sales must be increase. Thus, the minimal advertize budget must have additional funds allocated to increase sales and public relations. This is especially important during expansion to let customers know Custom Snowboards will be involved within the European market. Cash and Cash EquivalentsCash and cash equivalents were record at 7.2% in year 13 and year 14. This is a subst antial drop from previous recordings. To parry liquidity concerns, Custom Snowboards must increase the balance in cash and cash equivalents. Root causes for the decline must be determined and corrective plans must be implemented. An increase in marketing and public relations to increase harvest-home certainness is one example that could be implemented that would help generate sales.Total Current AssetsAssets are important in the business arena and profitability ask to rise for a company to be masteryful. Total live assets dropped 16% in year 13 and year 14 for Custom Snowboards. This is a concern and companies that see assets drop are not profitable and over time pull away money (Hammel, 2013). Total current assets guide to be CUSTOM SNOWBOARDS 9raised and to do so debt betoken for to be paid off or even down. However, Custom Snowboards needs to redirect some monies to be utilized during the expansion process. A3. balance AnalysisThe solvency of Custom Snowboards will be reviewed and confirmed by the ratio analysis. Custom Snowboards is seeking a loan for $1,000,000 and has great potential for growth in the snowboard market. The snowboard market has seen a demand for the product and an increase in sales. Income statements and balance sheet from two years of financial info will be reviewed and presented.ProfitabilityGross Profit MarginCustom Snowboards financial health is determined by the gross profit margin. Year 13 Custom Snowboards gross profit margin was 30.4. This means Custom Snowboards withstanded $0.30 out of every $1.00 earned. Year 14 saw no change in the gross profit margin. A gross profit margin of only 30.4 is not a strong margin ratio and indicates a weakness for Custom Snowboards, especially when the industry comely was 32.1%. Custom Snowboards commenced a reduction in sales and was able to avow the $0.30 per dollar in revenue, which indicates strength within the company. It goes without saying that profitability will be low whe n gross profit ratio is low (Horngren, 2009). Custom Snowboards plan to help the expansion project by eliminating expensive liabilities.Net Profit MarginCustom Snowboards net profit ratio was 1.5% in year 13 and with a downturn in sales in year 14 the ratio had dropped to 0.3%. This was well below the industry average CUSTOM SNOWBOARDS of 5.1% preserve by Winter Sports. This is a concern for Custom Snowboards since the business sustainability is in question if profit drops or is absent. Custom Snowboards needs to increase sales and show an increase in wampum to ease any concerns lenders may have regarding the companys efficiency to overthrow the unforeseen decrease. give on Total AssetsCustom Snowboards bring to on total assets was enter at 5.4% in heel counters in year 13, which is considered a strong performance. The profitability and sales were strong as well. However, Custom Snowboards slide by on total assets had dropped to 1.0% by the end of year 14 collectable to poo r sales and profitability. A major competitor, Winter Sports, preserve a more profitable year at 4.8% return on total assets. This demonstrates the competitor was able to match overhead make better than Custom Snowboards. Return on Common EquityReturn on customary blondness demonstrates how equity is effectively used to createmore profits and is a significant ratio for the company. The return on common equity for year 13 was 11.4% and is seen as strength for Custom Snowboards. It figures to $11 return on every $100 earned by the company. However, by year 14 the return on common equity had dropped to $2 on every $100 earned. This was subpar and below the industry average. A major competitor, Winter Sports, save 8.1% return on common equity ratio.LiquidityCurrent RatioProblems with liquidity can be found within a common financial ratio. This will give an idea of what the working capital position is like for that company. Furthermore, CUSTOM SNOWBOARDS it will be a good indicati on to determine if a company will be able to repay a debt within a 12-month time frame. A company with a high current ratio often has cash or account requirement to pay for short-term debts. The current ratio for Custom Snowboards during year 13 was 6.82. This is an acceptable number, as 2 often is the indicator that determines whether a company is able to pay for short-term liabilities. Again, year 14 saw a decrease in numbers and lost almost one full point in the current ratio dropping to 5.84. This is not a cause for concern, merely demonstrates strength for Custom Snowboards and their position to meet short-term liabilities. This ratio is better than a major competitor, Winter Sports, who recorded a current ratio of 4.20. Acid-Test RatioInvestopedia (2013) defines an acid-test ratio as one that determines whether inventory needs to be sold to cover immediate liabilities or if a company has enough short-term assets to do so. Along with a current ratio, the acid-test ratio shou ld have a high number to be in a better financial position. Year 13 recorded the acid-test ratio at 6.82 and year 14 at 3.64. Year 13 and year 14 are seen as strengths, since an acid test ratio should have a 1 or higher to be considered able to meet current liabilities. Year 14 saw Custom Snowboards lose sales in a struggling saving yet continue a higher acidtest ratio than the industry average of 3.40. Again, this is seen as strength for Custom Snowboards and the ability to meet short-term obligations.SolvencyDebt RatioA debt ratio is reviewed to see the financial ability of a company to repay its debts and the ability to have a cushion to fall back upon should the need arise. Custom CUSTOM SNOWBOARDSSnowboards has stringently worked to accumulate large cash and cash equivalent balances to help in case of an economic downturn and prevent a cash crisis. The debt ratio was 52.5% in year 13 and 50.4% in year 14. This reduction demonstrates company strength, since Custom Snowboards was able to continue to squeeze debt era facing a decline in profits and sales. However, Winter Sports were able to record a lower debt ratio of 38%. Custom Snowboards must discontinue a strategic plan to increase sales, reduce be, and reduce current debts so they are able to reduce the risks for insolvency. Time post EarnedA higher time interest earned ratio is apocalyptic on how well a company can make payments on interest owed for debts. To find this ratio, you must know the total earnings before interest and taxes of a company because divide by the total fall of interest due on the debt. Custom Snowboards recorded a 2.58 time interest earned in year 13 and 1.29 time interested earned in year 14. A time interest earned ratio of 1.5 is indicative of the companys ability to make payments on the debt. Thus year 13 is strength for Custom Snowboards and was generating enough money to meet the interest payments owed. However, year 14 saw a decrease and a weakened financial posi tion. This was due to a decline in sales and difficulty generating revenue. Winter Sports had a oft stronger financial position and recorded a time interest earned ratio of 5.10. B1. Historical AnalysisThe past and present performance info of Custom Snowboards liability and equity will be reviewed utilizing a horizontal analysis for year 12, year 13, and year 14. The balance sheet and income statement will be reviewed and compared to measure CUSTOM SNOWBOARDS 13growth and reduction. The review will similarly look for insolvency so correctiveactions may be implemented.Net ProfitNet sales and growth in profit is important for company existence. Net sales for Custom Snowboards were recorded at $6,601,00 in year 12 and increased by $32,200 or 0.49% in year 13. Year 14 saw a decrease in net sales and recorded a drop of 3.40% and net sales of $6,407,800. Net sales, when up, indicate strength for a company and are indicative of a thriving business, but when down there is an effect on pr ofit that everyone notices.Cost of Goods SoldThe cost of goods sold in year 12 and year 13 increased 0.49% and recorded expenditures of $32,000 more in year 13 on cost of goods sold. This actually amounted to the same as net sales during the same time period. Year 13 and year 14 saw be of goods sold drop and net sales drop to 3.40%. These can be seen as strengths for Custom Snowboards since they are meeting the demand for their product and demonstrating a relationship among profit and cost of goods sold (Kennon, 2013). Gross ProfitCustom Snowboards recorded an increase in gross profits of 0.49% in year 12 to year 13. This is not surprising since net sales and cost of goods sold were recording an increase at this time. This is considered strength for Custom Snowboards because gross profits increased when sales increased. Year 13 to year 14 gross profits saw a dramatic drop of 3.40% or $600,000 due to the decline in sales from the economic downturn and the possibility of competitors selling similar products at reduced cost. CUSTOM SNOWBOARDS 14Operating ExpensesOperating expenses for Custom Snowboards increased 4.21% or $733,000 in year 12 and year 13. This trend continued into year 14 and increased another 2.23% or 40,400 to a total of $1,853,200. Custom Snowboards must find a way to determine how operating expenses can be reduced without raising product prices yet increase sales. General and Admin ExpensesCustom Snowboards increased administrative salaries 4.76% in year 12 and year 13 when sales were increased as well. Salaries also increased during thistime period 13.63%. This makes sense because sales were increased, so payoff would need to be increased as well. Administrative compensation is a concern upon review and rose from $210,000 in year 12 to $250,000 in year 14. Year 14 saw sales drop and gross profits drop. The demand for products has been reduced and this is not possible that compensation should continue to increase more than 13%.Executive Sa lariesCustom Snowboards increased executive salaries 2.63% in year 12 and year 13. The company proceeded to increase executive salaries once again in year 13 and year 14 10.26%. This is not feasible and a concern for Custom Snowboards. The company needs to be incisive operating costs and compensation of executive salaries since a loss of sales and demand for products has happened. Custom Snowboards needs to standardize exertion practices for maximum efficiency, reduce staff hours to compensate for the decrease in production demand, and reduce costs while the demand remains low. CUSTOM SNOWBOARDS 15UtilitiesCustom Snowboards recorded increased advancement costs of 7.14% or $17,000 in year 12 and year 13 and then a continued increase of 1.96% or $5,000 increase for year 13 and year 14. The increase in year 12 and year 13 is not surprising because the demand for products was higher and sales were increased. The cost for utilities and energy consumption should then have decreased w hen production demand waned. The utility budget for Custom Snowboards was not realistic, since sales increased 0.49% or $32,200 and that is less than half of what monies are provided within the utility budget. Current AssetsChanges in percentages on multiple accounts can affect profitability. Custom Snowboards recorded current assets that changed period to period by increasing and then decreasing.Cash and Cash EquivalentsCustom Snowboards recorded an 83.8% increase in cash and cash equivalents in year 12 and year 13. This gave the company a large cash balance and theability to meet short-term obligations without problems. A 7.2% reduction in cash and cash equivalents in year 14 was recorded when sales declined. The higher the cash and cash equivalents the more handiness the company has to liquidate assets to cover short-term obligations. Accounts ReceivablesCustom Snowboards recorded a minimal increase of 0.5% in accounts receivable during year 12 and year 13. To have an increase i n accounts receivable is a concern for the company since its indicative that customers are often having trouble making payments for products purchased. Accounts receivable was improved in year 13 and year CUSTOM SNOWBOARDS 1614 when a decrease of 3.4% was recorded. This would be strength for the company and indicate the customer has paid for products purchased and revenue is moving in the right direction. unprocessed Materials InventoryRaw materials inventory increased 0.5% in year 12 and year 13, but decreased 3.4% in year 13 and year 14. To have limited raw materials inventory for production is strength for Custom Snowboards. This limited inventory is palmy to store when sales decline and comfortably accessible when sales re confine and production increases. LiabilitiesLiabilities are obligations owed on short-term and long-term debts. Custom Snowboards decreased liabilities 5.5% in year 12 and year 13. The company was further able to reduce liabilities 6.2% in year 13 and year 14. This is strength for Custom Snowboards and is indicative of positive financial repayments. Accounts and Notes collectableCustom Snowboards accounts and notes payable increased 0.5% in year 12 and year 13, but decreased 3.4% in year 13 and year 14. This is considered strength for Custom Snowboards and is indicative of positive financial repayments. Total Current LiabilitiesCustom Snowboards total current liabilities increased for year 12 and year 13 0.3%, but year 13 and year 14 recorded a decrease of 3.4%. This is strength for the company and again shows a positive repayment history that exhibitscreditworthiness. This should tell lenders that Custom Snowboards is committed to repaying liabilities even when a decline in sales happens.CUSTOM SNOWBOARDS 17B1a. Future PerformanceA trend analysis will be conducted to view financial changes that have transpired over the multiple years within Custom Snowboards. These changes will then be calculated, evaluated and used for comparison t o the low year to help develop a plan of action and provide direction for which Custom Snowboards will head financially. The base year is year 12 with $6,601,000 in net sales at 100%. Net sales recorded minimal growth in year 13 at 0.5% over base or 100.5%. Monetarily net sales recorded a $33,200 growth in year 13, which is not seen as a strong growth, especially since the demand for the product was decreasing. Year 14 recorded a drop in net sales to 97.1% from baseline in year 12 and 96.6% in comparison to year 13. This is a concern for Custom Snowboards since sales could not be maintained.Procedures may need to be reviewed to check for inconsistency and inefficiency in production and sales so this may be corrected and sales can be boosted. Pricing ad beneficialments can be made and the product may become more appealing to potential and existing customers. Custom Snowboards prognosiss a recovery of 3% in year 15 on the trend analysis, which will help build up their financial pic ture. Management envisions growth and net sales will occur and increase consistently as the economy improves. The forecast for year 16 is not as affirmative as year 15 and net sales drop 1% or $100,000. The prices on products will be adjusted to remain militant within the industry. Management believes the economy will recover then net sales and revenue will improve. Year 17 is forecasted to improve 3.7% over base line or total earnings of $6,647,452. This trend analysis shows the management of Custom Snowboards believes the company can recover and become thriving and grow.CUSTOM SNOWBOARDS 18B2. Improvement RevisionLine items in use will be reviewed in the overhead analysis to see what is profitable, cost effective and scoop practice for personalizing snowboards.The goal for Custom Snowboards is to increase net sales and revenue and limit liabilities, while making everyone joyous. The company must maintain prices that can be competitive within the industry and European market ye t maintain profit margins that are reasonable to succeed.A traditional cost method is currently implemented at Custom Snowboards. The company currently has two product lines, fixity snowboards and customized snowboards. The individual symbol of snowboard and the inventory ordered for each determines the cost of each snowboard. The assumption is the manufacturing cost drives the price of the product. The concern with this type of cost driver is it does not take into condition all the underlying costs that affect the overall product price (Johnson, 2013). Custom Snowboards must be more accurate in production costs to have increased profits without rising product pricing and remain competitive in the industry. body process based be could be something Custom Snowboards losss to implement to help obtain a more accurate picture of production costs. This method allows a company to see the overhead in manufacturing and what each bodily process actually costs in the production process . It is more accurate and adjustments can be made with specific activities to reduce the amount of money spent.Custom Snowboards call forths regular and personalized snowboards. performance based be can compare these manufacturing processes and see where the overhead costs are in each step of the production process for each product. The material and labor CUSTOM SNOWBOARDSCosts for both traditional and activity based cost is $3,375,143 for the regular snowboard. The personalized snowboard material and labor costs is $1,177,344 utilizing both the traditional and activity base cost methods.Custom Snowboards has a lump sum overhead charge for manufacturing using the traditional costing method. unbroken snowboards sum is $1,068,982, while the personalized snowboards sum is $334,048. Utilizing the traditional costing method the total production cost is $4,444,125 for the regular snowboard and $1,511,392 for the personalized snowboard.Activity based costing distributes costs among the activities it takes for manufacturing to help determine accurate product pricing. close to activities included in activity based costing consideration are product development, character control, package assembly and shipping, and miscellaneous items. Regular snowboards have a manufacturing cost of $546,863 utilizing the activity based costing method. personalize snowboards activity based cost for manufacturing is $856,167. Thus, total cost for production for regular snowboards is $3,922,006 and personalized snowboards is $2,033,511.The activity based costing method reveals Custom Snowboards has overspent during the manufacturing and production process while utilizing the traditional costing method. The new personalized snowboards have a greater factory setup cost, but should decrease over time as the product is sold. One improvement identified is furtherance and shipping of both products. There is a significant difference between the cost with regular snowboard box and shippin g costing $266,072 and personalized snowboards packaging and shipping cost of $66,516. This is quite a dramatic difference, especially CUSTOM SNOWBOARDSSince regular snowboards comprise on 20% of sales while the personalized snowboard sells 80% of the sales output. The activity based costing method can help trim costs and overspending while being able to forecast more accurate pricing and sales to ensure a better return on enthronement.Custom Snowboards could utilize the just in time costing method that follows the principle materials do not sit in the warehouse, but are pulled when the demand is there for the product. This is not an ideal costing method for some businesses, since it leaves no wiggle room when forecasting the future. The just in time method does minimize costs and production time, since these things take ordinate when there is a demand for the product and no overabundance inventory is left sitting around. This leaves more cash for the company to re-invest and imp rove costs.For just in time costing to work requires the company to forecast sales andevaluate trim inventory and materials. Custom Snowboards had $143,136 in otiose inventory in year 14. This will continue to increase by 0.1% annually if no adjustments are made to production. Custom Snowboards has previously had excess inventory and materials left over annually. Utilizing the just in time costing method can help increase income for the company and help save time, costs, and resources during the production demands.B3. Internal and External RisksRisks that can be controlled by the company are internal risks. Risks that happen outside of the company and the company cannot control are external risks. External risks often happen without warning and this is wherefore companies must have the forethought to be prepared for many things. Some external risks include environmental issues, currency CUSTOM SNOWBOARDSExchange rates, economic factors, and legal issues both domestic and internal . Internal risks may include production staffing, language barriers, and management anatomical structure. Management Structure and StaffingStaffing and management structure would be considered an internal risk since Custom Snowboards will have to make changes in the management structure with expansion into Europe. The company will have business operations in two countries and the goal will generally need to remain the same at both locations. The courseers will need to be both effective and efficient to guide the company to a successful transition. Staffing will play a major role, since multiple positions will have multiple people working in that role in both facilities. The leadership of the company will have to evaluate these positions to maximise efficiency to work towards increased revenue and profits. Loss of Focus magnification may often cause a shift of business focus to change and move away from important issue like note assurance, production efficiency, and production de adlines. Leadership must ensure the company has a strong core to stay focused on the business goals for current and future project successes.Language and Cultural BarriersExpansion into Europe is bound to cause language and pagan barriers. A new country and market can cause interactions to be strained if language and cultural barriers cannot be breached. Language is important in business to ensure communication is effective the company must have leaders that know the language in the new country and are sensitive to the cultural differences for a successful expansion. It would be CUSTOM SNOWBOARDSDeferential to offend potential customers, thus ruining company relations. The business goal is to prosper. silver Exchange RatesThe expansion into the European market will require Custom Snowboards to deal with alien currency. The foreign currency rates change frequently and Custom Snowboards will have to convert this into US Dollars. The company will have to ensure they are not losing money on their products and they are not overspending on production costs. The company cannot control this external risk factor, but they do need to try and prepare for any eventually that may affect the company. The US economy may be strong, but a concoction of things can cause this to crash and the same goes for the European economy. Foreign economy can lead to large fluctuations and for great revenue gains, but it also means it can cause big losses as well. outside(a) Legal RisksInternational and US legal risks are similar in nature and can cause several problems. Custom Snowboards must insure the tax laws and operations as it expands into the European market. The company must control the legal standards of the business operations in the market. The company must ensure they have met all the obligations of the law within the countries they will be providing function to and to defray any problems that may arise. Also, by taste these laws Custom Snowboards can eliminate costly legal fees and fines.environmental RiskAn external risk beyond Custom Snowboards control is an environmental risk. Snowboards require snow and winter. Environmental factors can severelyaffect sales of CUSTOM SNOWBOARDSSnowboards. Dry, warm climates are less possible to need a snowboard. Marketing is important in this aspect and should focus on areas that have winter gruntles and snow. European areas start out in climate and marketing should focus on areas that are florescence for skiing. Weather patterns may also play a role in environmental risk. El Nino and La Nina can affect the winter season and how much snow and how cold the area actually gets.Complete customer Service node service is important with any business. The goal is to help resolve any issues a customer may have to reduce the dissatisfaction. Custom Snowboards will have a large area to cover within the European market and must be cogzignant of a grand variety of languages and customs to be aware of. Customer sup port should be convenient for all consumers. A positive customer service experience will lead to good reviews and word-of-mouth sales, which boost revenues. Poor customer service travels fast and would hurt Custom Snowboards and reduce sales and revenue. good SuppliersCustom Snowboards must be able to get products to the European vegetation to produce the snowboards. Communication skills are key to dealing with business partners to reduce any potential obstacles. Business practices must be clarified to avoid any complications. Product quality must be written proclamationually to avoid any possible confusion. Individuals with good communication skills must be office staffd in the positions to help secure these suppliers to keep product quality the best and available for production. CUSTOM SNOWBOARDSB3a. RecommendationManagement Structure and StaffingA management and staff model must be developed and utilized to excuse risks. The plan must outline the companys organizational cha rt and who reports to whom. The organizational chart will outline each part of the company and the staff that are identified within each department. The company will then develop specific job descriptions for each position toclarify the role and expressations. Custom Snowboards management team will then be able to identify what positions are exactly needed and where cuts can be made. This will help ensure the strongest staff is in place for the expansion to deal with issues as they arise. A plan in place will ensure the company can ensure smooth transitions for future expansions.Loss of FocusLoss of focus in current business practices requires a business plan to keep the company trained on the goal. The business plan will actually outline the goals Custom Snowboards has and where they want them to lead to. The company will implement the staffing plan into the business plan to mitigate risk. A taskforce will be formed that will focus solely on the management of the US plant, but wi ll engender updates on the planned European expansion.Language and Cultural BarriersLanguage and cultural issues require genteelness and education to reduce risk. Employees who are educated on languages and cultures are more likely to be comfortable and less likely to offend the customer. Custom Snowboards can hire interrupters to help staff until all are comfortable within new positions and skills have been attained. The CUSTOM SNOWBOARDS 25company should also consider hiring staff from all different cultures to strengthen the moral and company. Custom Snowboards should hold training seminars frequently to reinforce cultural identities served, especially when employees will be traveling to a new area.Currency Exchange RatesCurrency exchange rates are external risks, but Custom Snowboards are preparing to reduce any damage that affects the company. The exchange rates change frequently. The company will want to compare products with competitors to visiting pricing concerns prior t o the expansion. The cost for production should carefully considered reducing all necessary overhead to increase revenue. The European financial market trends must be evaluated and then trend projections can be created. The financial market is not totally predictable so it not able to mitigate risk completely.International Legal RisksA legal team that is well versed with international law is key to reduce risk. Also, a management team that is aware of potential pitfalls and risks associated with international is key to have in charge during expansion. The company must comply with all laws and ensure they translate all the laws of the countries that they will be doing business with. The company should educate staff on what laws are pertinent to their respective departments and keep them abreast of changes. Custom Snowboards should ensure they have enough cash available to survive, should issues arise. Environmental RisksCustom Snowboards has absolutely no control over the environmen t. They can ensure plants and warehouses are up-to-date and in stable condition to be able to digest CUSTOM SNOWBOARDSAny type of weather they may encounter. Production needs to take place in multiple areas, so should something happen to one area they can continue production without further losses. Custom Snowboards can review and analyze annual weather reports to help forecast trends and be prepared for the unexpect. An environmental risk can take many forms and is grievous to predict and control. The company must have multiple contingency plans in place for this reason.Customer ServiceCustomers are essential to a business. The profitability of a business relies greatly on how satisfied a customer is, repeat business and potential new customers because of word of mouth advertising. A toll free call center will allow customers to call in with any questions or concerns regarding the products purchased. Custom Snowboards staff will be able to address these concerns and questions, bu t only after undergoing an educational training session and establishing a process standard of communication. The company will develop a communication and relationship curriculum to help focus on long-term relationships (Joseph, 2013).Reputable SuppliersCustom Snowboards must research suppliers available within the area of theEuropean expansion to ensure a reputable supplier is found that is both reliable and has quality products. The business terms and contractual details must be attended to minimize the chance of fraud. The contract must be written in terms that both parties understand to ensure no misunderstandings take place. It would be helpful for Custom Snowboards to employee area natives to help interpret when needed. CUSTOM SNOWBOARDSB4. Potential ReturnsCustom Snowboards is planning to expand into the European market. They will expand their customer base, increase revenue and experience a growth rate. Projected annual sales are expected to increase for year15 to year 19. Y ear 15 annual sales of $1,271,720 are project and expected to increase to $2,390,085 at year-end of 19. Also projected to increase is net cash flow especially as this has a direct relationship with the cost of goods sold. The forecast net income peaks at $256,703 in year 19 up from $98,550 in year 15. The European expansion is projected to build a strong financial future for Custom Snowboards.The Net Present Value and Internal Rate of Return are reviewed when looking at the capital budget of a business. The future honour and present comfort of a company is indicated based on cash flows under the net present value. Custom Snowboards is ready to invest $1,000,000 into an expansion project in Europe. This is based on cash flows over five years and the present total value of the company with a market change factored in or $1,028,437. This means the company will be profitable in the European market and see a return on their initial investment. The internal rate of return looks at the r ate the project grows at. Custom Snowboards looks at to return 10.8% over 5 years based on the initial $1,000,000 investment. The minimum rate of return or hurdle rate is set at 10%. This means the company will make a profit in the future on the initial investment. The net present value and internal rate of return are beneficial to companies when predicting future growth on investment. Companies that have a strong net present value and internal rate of return are able to secure loans and expand. This is important for the future CUSTOM SNOWBOARDS 28successes of companies. Custom Snowboards is predicting returns on their initial investment with the European expansion and increases in revenue. Custom Snowboards must evaluate their fiscal responsibility to determine if leasing or buying is in the best interest of the company. The company will need to put a $50,000 down payment from working capital and $800,000 to either buy or lease a facility. Analysis determines purchasing a facility would be in the best interest of the company. The present value outflow to lease is $653,355 and $597,723 to purchase a building. The tax extrapolateions available would provide a benefit to the company as well. Custom Snowboards should consider obtaining ad picking money for a long-term debt from an outside source. The optimal capital structure that would provide the best return is to fund the project in Europe over five years. This would allow for 1.547 earning per mete out to accrue even though the debt will require a 6% interest rate on return. This will also help preserve cash flow since a constant repayment is easier to budget and earnings can continue to grow. Custom Snowboards is reliable and creditworthy. This will be easier for them to obtain the long-term debt.Debt financing can provide a benefit to Custom Snowboards since they would be able to deduct interest on the business taxes at the end of the year (Daniels, 2013). Having an owing(p) debt can be a downfall for a company as well. The company is under the obligation to make payments to the lender in a timely manner and if the projected revenue is not as expected this will be detrimental to the company and capital structure.The budgeting process will help Custom Snowboards decide to expand into the European market. The management team must look at all the capital budgeting CUSTOM SNOWBOARDS 29techniques to understand the total viability of the project. The decision will not be an easy one, but will require careful review of the entire financial picture. B5. SummaryCustom Snowboards has demonstrated that European expansion is an idea that is viable for the company. The company must now decide if they wish to build, commingle, or embrace within the European market. This will not be an easy decision, but meticulously made after analyzing the capital structure andcorporate strategies. Custom Snowboards has the option to build a new plant within the European market. They would need to determine where the plant would be located and acquiring the necessary land and permits. The company would be required to start from scratch to get started.The plant would be built to the companys specifications and could be economical, but would require a large amount of money for start-up initially. Buying a building is another option available to Custom Snowboards, but ties the company to the area. This would be the smartest move based on the financial data available. It would be cost effective and allow the company to move in after the building is adapted to the needs of the company. However, leasing a facility would give Custom Snowboards the opportunity to leave the area if the forecasted expectations are not attained and things are not as viable as hoped.Custom Snowboards has the option to merge with SnowFun, Inc. This would provide the expansion into the European market that Custom Snowboards desires. The merger would provide the opportunity to increase profits, earnings per share fro m $0.98 to $1.18, have less competition, and expect a strong return on investment. SnowFun stockholders will benefit more from the merger than Custom Snowboards in regards to CUSTOM SNOWBOARDS 30earnings per share, since SnowFun will see earnings per share will go from $0.26 to $1.18. Custom Snowboards would have 200,000 market shares pre-merger and 500,000 after the merger has taken place. Custom Snowboards can buy shares back to reduce the amount available to the public and the stockholders will increase the earnings per share. This would be beneficial to the stockholders, but is not always available immediately after a merger has taken place.Custom Snowboards would also see increased company worth if a merger took place. They would gain invaluable contacts from SnowFun and gain insight on the European snowboard market that they would not otherwise have. However, a merger would leave the company with excess employees. This can lead to disgruntled employees and low staff moral. Cus tomers may be aware of this and startle away from purchasing products from this newly merged company. CustomSnowboards will need to ensure everyone feels valued and is happy. It would be beneficial to find displaced employees another position, but that is not always possible. This would go along ways to control customers as well, as it shows the company is willing to make concessions to keep the customer happy and taken care of.Finally, Custom Snowboards could acquire SnowFun, Inc. Custom Snowboards would then have to buy out SnowFun and acquire full ownership of the products, materials, and debts they have. SnowFun is requesting $720,000 from Custom Snowboards to acquire full rights to the company. The net present value of SnowFun is $732,522. An increase of $12,522 would be seen for Custom Snowboards over a fiveyear period. This option would increase the earnings per share to $2.40. CUSTOM SNOWBOARDSAs mentioned with the merger option, Custom Snowboards would gain invaluable con tacts from SnowFun and gain insight on the European snowboard market that they would not otherwise have. The company would increase earnings per share for stockholders. They would have factory and production equipment quickly available to start production right away without delay. They would gain product development knowledge from what SnowFun had previously completed and this could lead to refined processes of current products.However, a merger would leave the company with excess employees. This can lead to disgruntled employees and low staff moral. Customers may be aware of this and shy away from purchasing products from this newly merged company. Custom Snowboards will need to ensure everyone feels valued and is happy. It would be beneficial to find displaced employees another position, but that is not always possible. This would go along ways to reassure customers as well, as it shows the company is willing to make concessions to keep the customer happy and taken care of. Also, it is hard to integrate two companies and acquire the debt from SnowFun. This could abuse the company if they do not budget for this newly acquired debt. Custom Snowboards best option is to decline the offer to acquire SnowFun, but to merge the companies. The costs to start a new company would be limited and there would be a readily accessible building, contacts, product knowledge, marketknowledge, and increased earnings per share. Not all employees will be able to retain their job, however the employees that remain will be the most knowledgeable regarding the product to boost sales and revenue. This will help the company attain the success it hopes to achieve.CUSTOM SNOWBOARDS 32B6. PresentationThe recommendation was made to initiate a merger between Custom Snowboards and SnowFun, Inc. The financial information reviewed shows the companies will produce an increase in capital from net sales and reduce production costs. This will provide the stockholders with a higher return on inv estment due to growth after the merger has taken place.Merging will not require Custom Snowboards to acquire a large amount of funding or long-term debt since a stock exchange will take place. The earnings per share for Custom Snowboards will increase $0.92 and SnowFun $0.20. A total of 500,000 shares will be available after the merger. SnowFun will feel 3 shares to every 1 share that Custom Snowboards receives. There are four structures to review Long term debt, 30% long term debt and 70% common stock, 80% long-term debt and 20% common stock, and no long-term debt (common stock only). Custom Snowboards hopes to obtain $1,000,000 through one of these types of structure. The earnings per share for each year based on earnings before interest and taxes from the European forecasts for year 15 through year 19.EarningsPer ShareYear 15 Year 16 Year 17 Year 18 Year 18 Year 19 longDebt0.034 0.203 0.407 0.589 0.720 1.95330% Long-Term/70%Stock0.068 0.130 0.204 0.270 0.318 0.9980% Log-Term/20% Stock0.052 0.165 0.300 0.422 0.509 1.448No Long-Term Debt(StockOnly)0.072 0.121 0.179 0.231 0.268 0.87CUSTOM SNOWBOARDS 33The long-term debt option would be the second choice for expansion for Custom Snowboards should they not want to merge. The total earnings per share in year 19 would be $1.953 and higher than any other option. The long-term debt would also have consistent payments monthly that would be easier to budget and to forecast sales against. Custom Snowboards is a viable company that is growing and making advances. Areas of improvement do need to be made to continue this progressive growth, but they are in a position to expand into Europe. Thanks to financial responsibility they are in the position to take on debt if necessary to make this expansion happen. A merger with SnowFun, Inc. would provide virility to the company and provide a positive base for continued growth.CUSTOM SNOWBOARDS 34ReferencesHunt, J. 2013. What determines a Companys Profitability? Retrieved on whi tethorn 11, 2014 from http//smallbusiness.chron.com.Investopedia. 2013. Activity-Based Costing ABC. Retrieved on may 2, 2014 from www.investopedia.org.Investopedia. 2013. Operating Income. Retrieved on April 30, 2014 from www.investopedia.com.Johnson, R. 2013. Traditional Costing Vs. Activity-Based Costing. Retrieved on may 3, 2014 from http//smallbusiness.chron.com.Joseph, C. 2013. Advantages & Disadvantages of Customer Service Jobs. Retrieved on May 11, 2014 from http//work.chron.com.Kennon, Joshua. 2013. 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