Risk Factors of Abc Company
Risk Factors of ABC Company
Risk Factors of ABC Company ABC Company is a manufacturing firm that specializes in making cedar roofing and siding shingles. The current annual sales of the company are roughly $1.2 million. This is a 25% increase from the previous year. The goal of this company is to reach $3 million in annual sales within the next 3 years. The CEO has decided to expand the product line to include an additional product. The product expansion consists of manufacturing cedar dollhouses using shingle scrap materials. A product expansion will result in additional revenue and gross profit to help reach the goal of $3 million in annual sales but there are many factors that need to be considered before moving forward with the expansion. The issues that will be addressed are current economy and industry issues, company cash flow statement, product cost, and potential investments to accelerate profit. An important issue to consider when discussing expansion of a product line is the current cash flow of the company. A cash flow statement “divides cash flow information into key categories related to operating activities, investing activities, and financing activities” (Aguiar, 2012). Operating activities include operations that occur daily. For example, increases or decreases in receivables and payables are accounted for on the cash flow statement, just as other activities from operating a business. Investing activities include the purchasing or selling of long term assets, such as property and equipment. Financing activities include borrowing and repayment of long term liabilities. The cash flow statement (Exhibit 1) shows that ABC Company does not have many investing or financing activities occurring. The majority of the cash flow is cash outflow to pay for merchandise inventory and salary expense that will increase if the product expansion occurs.
EXHIBIT 1
ABC Company
Statement of Cash Flows
For the Year Ending December 31, 19X2
Risk Factors of ABC Company ABC Company is a manufacturing firm that specializes in making cedar roofing and siding shingles. The current annual sales of the company are roughly $1.2 million. This is a 25% increase from the previous year. The goal of this company is to reach $3 million in annual sales within the next 3 years. The CEO has decided to expand the product line to include an additional product. The product expansion consists of manufacturing cedar dollhouses using shingle scrap materials. A product expansion will result in additional revenue and gross profit to help reach the goal of $3 million in annual sales but there are many factors that need to be considered before moving forward with the expansion. The issues that will be addressed are current economy and industry issues, company cash flow statement, product cost, and potential investments to accelerate profit. An important issue to consider when discussing expansion of a product line is the current cash flow of the company. A cash flow statement “divides cash flow information into key categories related to operating activities, investing activities, and financing activities” (Aguiar, 2012). Operating activities include operations that occur daily. For example, increases or decreases in receivables and payables are accounted for on the cash flow statement, just as other activities from operating a business. Investing activities include the purchasing or selling of long term assets, such as property and equipment. Financing activities include borrowing and repayment of long term liabilities. The cash flow statement (Exhibit 1) shows that ABC Company does not have many investing or financing activities occurring. The majority of the cash flow is cash outflow to pay for merchandise inventory and salary expense that will increase if the product expansion occurs.
EXHIBIT 1
ABC Company
Statement of Cash Flows
For the Year Ending December 31, 19X2