Making a Decision as a Financial Analyst: Analyzing Cash Flow for a New Company Carlyle Golf, Inc., was formed in September of last year. The company designs, contracts for the manufacture of, and markets a line of men’s golf apparel. A portion of the statement of cash flows for Carlyle follows:
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CURRENT YEAR |
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Cash flows from operating activities |
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Net income |
$460,089 |
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Depreciation |
3,554 |
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Noncash compensation (stock) |
254,464 |
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Deposits with suppliers |
404,934 |
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Increase in prepaid assets |
42,260 |
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Increase in accounts payable |
81,765 |
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Increase in accrued liabilities |
24,495 |
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Net cash flows |
($543,005) |
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Management expects a solid increase in sales in the near future. To support the increase in sales, it plans to add $2.2 million to inventory. The company did not disclose a sales forecast. At the end of the current year, Carlyle had less than $1,000 in cash. It is not unusual for a new company to experience a loss and negative cash flows during its start up phase.
Required:
As a financial analyst recently hired by a major investment bank, you have been asked to write a short memo to your supervisor evaluating the problems facing Carlyle. Emphasize typical sources of financing that may or may not be available to support the expansion.