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Sunset Boards Mini-Case

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Sunset Boards Mini-Case
1) The best way to think about a company’s cash flow is to realize that it is the actual inflow and outflow of cash from the company. It does not show profitability but liquidity. By looking at the operating cash flow we can see that it has increased from 2010 to 2011. This is a good thing because it shows that the company operates well as far as an expense to cash inflow ratio. It also shows that the company does not require external financing because internally the company is running very well. The increase is due to raising more money from 2010 to 2011 and not requiring a huge increase in expenses. The company also has a low accounts receivable balance which means that they are good at getting the money from sales right away which is important when looking at cash flows.
2) I believe that Tad is well in his rights to expand his company and I think it would actually be a good business move for him. Considering the fact that he generates a good amount of cash flow and the company has almost $100,000 to liquidate at all times, I would generate an investment from already existing investors and stock holders in order to make this expansion happen. If Tad were to expand he would most likely increase his inventory turnover because his products would be more widely available to consumers since his inventory turnover is already 4.8.It goes back to the liquidity concept, or having short term solvency. If his company keeps up this pace of selling he will definitely do well with an expansion.

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