MSMW Case Study: Pro-forma Balance Sheet of Third Quarter, 2008

MSMW Case Study: Pro-forma Balance Sheet of Third Quarter, 2008

ASSETS
Current Assets
Cash at Bank: $800,000
Inventory: $250,000
Accounts Receivable/Debtors: $250,000
Prepaid Expenses: TBA/NA
Other Current Assets: TBA/NA
Total Current Assets: $1,290,000

Fixed Assets (Tangible)
Equipment/Machinery: $1,000,000
Buildings/Land/Factory: $2,005,000
Fixtures/Fittings: $100,000
Other Fixed Assets: TBA/NA
Less: Accumulated Depreciation: $1,500,000
Total Fixed Assets (less depreciation): $1,605,000

Other Intangible Fixed Assets: TBA/NA

TOTAL ASSETS: $2,895,000

LIABILITIES
Current Liabilities
Accounts Payable/Creditors: $400,000
Short-Term Loans: TBA/NA
GST: TBA/NA
Total Current Liabilities: $400,000

Long-Term Liabilities: $0.00
Long-Term Loans: $0.00
Mortgage: $0.00
Total Long-Term Liabilities: $0.00

TOTAL LIABILITIES: $400,000

EQUITY
Owner's Equity - Share Capital: $495,000
Retained Earnings (Previous Year): $2,000,000
Current Year Earnings: $267,200
TOTAL EQUITY: $2,762,200


TOTAL LIABILITIES AND EQUITY: +$2,362,200

DISCUSSION

First, I will assume that the pro-forma balance sheet of 2002 actually represents 2008 otherwise I would have calculated cumulative inflation and growth of 10-15% annually. In summary a positive balance in total liabilities and equity indicates a possible self-financing export plan which would be ideal. However, utilizing possible EDC buyer supported purchase loans would be a somehwat secure method of kick-starting international sales.


ASSETS
Current Assets

Cash at Bank: $800,000 could be exercised as performing assets either in high interest savings or as basis for capital loans extensions which might not exceed half of its net value therefore project a 400,000 loan could be available on this amount at any time.

Inventory: $250,000 appears to be almost equal to current years sales profits. While acting as inventory it is a little scary to imagine that much inventory in proportion to sales volume. I would rather see it as sold goods so the domestic operation needs to find a way to clear inventory and turn into increased sales.

Accounts Receivable/Debtors:$250,000 again appears horrendously like nearly an entire years profits are tied up in outstanding accounts. What are we paying all of these managers for if it is not to turn debits into credits? I would like to see no more 10-15% of accounts receivable on annual profits.

Prepaid Expenses: TBA/NA
Other Current Assets: TBA/NA

I suspect MSMW has not creatively explored its other current assets category if its inventory and accounts receivables are in such shape. It's time to start turning over rocks on digging up other assets.
For example, what exactly are the minerals located on our site? What about possible value of those healing muds in their gross form as plain old mud?

Total Current Assets: $1,290,000

As for liquidity we only really have our cash at the bank immediately. Optimism required to turn those kinds of figures in inventory and unpaid accounts as actual liquid cash at any time.

Fixed Assets (Tangible)
Equipment/Machinery: $1,000,000
Buildings/Land/Factory: $2,005,000
Fixtures/Fittings: $100,000
Other Fixed Assets: TBA/NA
Less: Accumulated Depreciation: $1,500,000
Total Fixed Assets (less depreciation): $1,605,000

Obviously our depreciation rates should be telling us something about the perceived value of our fixed assets we are only getting about 50% of their value out of owning them. Either we find a way to distribute our depreciation expenses over future time to minimize its impact on our total fixed assets or we consider investing in new machinery especially if the part sales of half of our fixed assets add up to more than accumulated depreciation.

Other Intangible Fixed Assets: TBA/NA

We might consider quantifying our accumulated staff as intangible knowledge assets which do have a monetary value to boost our fixed assets. Not sure if I would include the inventory or accounts department staffs.

TOTAL ASSETS: $2,895,000

Only about 25% of this is actual liquid cash and the rest is going to have a severe sellers discount attached to its value if we try to liquify it.

LIABILITIES
Current Liabilities
Accounts Payable/Creditors: $400,000
Short-Term Loans: TBA/NA
GST: TBA/NA
Total Current Liabilities: $400,000

MSMW is blessed with no accounts payable/creditors or short-term loans (GST calculated in annual earnings). However this would have to be the first and perhaps only business in Eastern Canada which does not owe money to someone. It wouldn't hurt to borrow a little. Look how we are lending to our buyers and inventory departments! Let's knock on EDC's door and see what water we can squeeze out of their stones.

Long-Term Liabilities: $0.00
Long-Term Loans: $0.00
Mortgage: $0.00
Total Long-Term Liabilities: $0.00

Again these are blessings which only a case study could bestow. Fast cash possible in all of these categories except perhaps mortgages at the current time and who wants liabilities? However the minute potential lenders see our inventory holding and accounts due as well as depreciation on assets they might just shake their heads and point the way to the door. Our company accountant has been sleeping at the wheel.

TOTAL LIABILITIES: $400,000

EQUITY
Owner's Equity - Share Capital: $495,000
Retained Earnings (Previous Year): $2,000,000
Current Year Earnings: $267,200

Retained earnings literally sitting there doing nothing. That's two million we have to play with and should have been playing with all along. Owner's equity - a nice cherry on that thick wad of cash ready for re-investment, over-ripe. That's nearly a decade of current year's earnings sitting there doing nothing like a lump of clay. Who could we be even just lending it to for impressive interest? Bear-Sterns? Lehman Brothers? Fannie Mae? Freddie Mac? We might make more money lending that money than exporting with it anyway?

TOTAL EQUITY: $2,762,200


TOTAL LIABILITIES AND EQUITY: +$2,362,200

We are equity rich! Let's do something with all of this cash! Furthermore, a stock offering would be a pretty sure way of gathering cash for lending and boosting our confidence. With all that money lying around and a water-tight export plan we should come up with a few investors. We already have annual 10-15% growth domestically. If we need to borrow money we would be crazy on this pro forma.