What does this statement of cash flow tell you about the sources and uses of the company funds?

You’ve just been hired onto ABC Company as the corporate controller. ABC Company is a manufacturing firm that specializes in making cedar roofing and siding shingles. The company currently has annual sales of around $1.2 million, a 25% increase from the previous year. The company has an aggressive growth target of reaching $3 million annual sales within the next 3 years. The CEO has been trying to find additional products that can leverage the current ABC employee skillet as well as the manufacturing facilities.

As the controller of ABC Company, the CEO has come to you with a new opportunity that he’s been working on. The CEO would like to use the some of the shingle scrap materials to build cedar dollhouses. While this new product line would add additional raw materials and be more time-intensive to manufacture than the cedar shingles, this new product line will be able to leverage ABC’s existing manufacturing facilities as well as the current staff. Although this product line will require added expenses, it will provide additional revenue and gross profit to help reach the growth targets. The CEO is relying on you to help decide how this project can be afforded. Provide details about the estimated product costs, what is needed to break even on the project, and what level of return this product is expected to provide.

Financial information is contained in this document Final Paper Spreadsheet

Write a five- to seven-page financial statement analysis of a public company, formatted according to SPA style as outlined in the Ash ford Writing Center. Your paper should consist of the following sections:

  1. Introduction
  2. Risk Profile

o    An overall risk profile of the company based on current economic and industry issues that it may be facing.

  1. Cash Flow Statement

o    You need to complete a cash flow statement for the company using the direct method.

o    Once you’ve completed the cash flow statement, answer the following questions:

  • What does this statement of cash flow tell you about the sources and uses of the company funds?
  • Is there anything ABC Company can do to improve the cash flow?
  • Can this project be financed with current cash flow from the company? Why or why not?
  • If the company needs additional financing beyond what ABC Company can provide internally (either now or sometime throughout the life of the project), how would you suggest the company obtain the additional financing, equity or corporate debt, and why?
  1. Product cost

o    ABC Company believes that it has an additional 5,000 machine hours available in the current facility before it would need to expand. ABC Company uses machine hours to allocate the fixed factory overhead, and units sold to allocate the fixed sales expenses. Bases on current research, ABC Company expects that it will take twice as long to produce the expansion product as it currently takes to produce its existing product.

  • What is the product cost for the expansion product under absorption and variable costing?
  • By adding this new expansion product, it helps to absorb the fixed factory and sales expenses. How much cheaper does this expansion make the existing product?
  • Assuming ABC Company wants a 40% gross margin for the new product, what selling price should it set for the expansion product?
  • Assuming the same sales mix of these two products, what are the contribution margins and break-even points by product?
  1. Potential investments to accelerate profit

o    ABC company has the option to purchase additional equipment that will cost about $42,000, and this new equipment will produce the following savings in factory overhead costs over the next five years:

  • Year 1, $15,000
  • Year 2, $13,000
  • Year 3, $10,000
  • Year 4, $10,000
  • Year 5, $6,000

o    ABC Company uses the net-present-value method to analyze investments and desires a minimum rate of return of 12% on the equipment.

o    What is the net present value of the proposed investment (ignore income taxes and depreciation)?

o    Assuming a 5-year straight-line depreciation, how will this impact the factory’s fixed costs for each of the 5 years (and the implied product costs)? What about cash flow?

  • Considering the cash flow impact of the equipment as well as the time-value of money, would you recommend that ABC Company purchases the equipment? Why or why not?
  1. Conclusion

o    What are the major risk factors that you see in this project?

o    As the controller and a management accountant, what is your responsibility to this project?

o    What do you recommend the CEO do?

Section heading titles should be centered and in bold. Your paper needs to include a minimum of two scholarly resources in addition to the textbook as references. Be sure to integrate your research rather than simply insert it.

Writing the Final Paper

  1. Must be five to seven double-spaced pages in length, and formatted according to APA style as outlined in the Ash ford Writing Center. Excluding the title page and reference page.
  2. Must include a title page with the following:
  3. Title of paper
  4. Student’s name
  5. Course name and number
  6. Instructor’s name
  7. Date submitted
  8. Must use at least two scholarly sources in addition to the course text. Be sure to integrate your research rather than simply insert it.
  9. Must document all sources in SPA style as outlined in the Ash ford Writing Center and here and here.


  1. Must include a separate reference page, formatted according to SPA style as outlined in the Ash ford Writing Center.
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