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    Accounting and Banking - Better Brew and Perfect Blend

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    Perking Up Profits at Better Brew and Perfect Blend

    After years of dreaming about owning your own business, you decided that owning a coffee shop would be perfect. Rather than start from scratch, however, you and your partners decide to look at two existing establishments, Better Brew and Perfect Blend. The two are for sale at the same price, and they are located in equally attractive areas. You manage to get enough financial data to compare the year-end condition of the two companies, as shown below. Study the numbers carefully; your livelihood depends on choosing wisely between the two establishments.

    Better Brew Perfect Blend
    Assets
    Cash $10,000 $25,000
    Accounts receivable 2,000 4,000
    Coffee equipment 50,000 80,000
    Supplies 11,000 18,000
    Other assets 22,000 34,000
    TOTAL ASSETS $95,000 $161,000

    Liabilities and Owners' Equity
    Accounts payable $21,000 $38,000
    Bank loans payable 49,000 68,000
    Owner's equity 25,000 55,000
    TOTAL LIABILITIES & OWNERS' EQUITY $95,000 $161,000

    Other data
    Personal withdrawls from cash during 2003 $40,000 $38,000
    Owners' investments in business during 2003 $16,000 $32,000
    Capital balances for each business on January 1, 2003 $30,000 $12,000

    December 31, 2003, year end balance sheets

    What factors should you consider before deciding which company to buy? What additional data might be helpful to you? (Note that net income is implied).
    What questions should you ask about the methods used to record revenues and expenses?
    On the basis of the data provided, which company would you purchase? Detail the process you used to make your decision.
    Assignment adapted from: Mescon, M.H., Bovee, C.L., Thill, J.V. (2001). Business Today (pp. 450). Upper Saddle River, New Jersey: Prentice Hall

    Cablevision Survives a Financial Crisis - Then Creates a Few More

    In your text review, "Cablevision Survives a Financial Crisis - Then Creates a Few More". After reading the Case for Critical Thinking, answer all of the associated questions as follows:

    Why did Dolan decide not to reduce customer service staff in the cable operation?
    How did the company's sinking stock price affect its financial management?
    Why couldn't Cablevision simply borrow $600 million to close the cash flow gap?
    Visit the investor information section of Cablevision's website, http://www.cablevision.com, and check out the financial news. How has the company performed financially in recent quarters?
    Assignment from: Bovee, C.L., Thill, J.V., Mescon, M.H. (2007). Excellence in Business Today (pp. 576-578). Upper Saddle River, New Jersey: Prentice Hall

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    Solution Preview

    Financial information that is used in a company's financial statements is important not only to the company but to those that might have interest in investing in it. The information within allows managers and owners to plan and control the operation of the company and most importantly to make well informed business decisions. Knowing whether or not a company is creditworthy is why financial information is of great interest to suppliers, banks, other lenders, investors and shareholders. It is essential that companies abide by the rules set forth by the generally accepted accounting standards (GAAP). The intention of these principles is to present a rational and accurate picture of a company's financial position.
    Factors to consider before deciding which company to purchase
    Of course there are financial questions and other areas of concern that need to be evaluated before purchasing a business of any kind.
    · Revenue and income generated by the business in the last 3 to 5 years

    · What is the liquidity ratio?very critical if the company has a significant quantity of bank loans

    · Current relationship with the banks?for future loans if need be

    · Current asset value?the machines that are used to operate the business

    · Depreciation of those machines?when and how much

    · How does the company compare to those that are similar
    · Why makes this company unique over others in the area

    · Company's customer base?can we relate and build a relationship of our own

    · Relationship with suppliers

    · Current employees?are they trained to our satisfaction

    Research needs to be done in the area of why the current owner is selling. If the owner is just retiring then no true concern, but if he/she is selling ...

    Solution Summary

    Financial information that is used in a company's financial statements is important not only to the company but to those that might have interest in investing in it. The information within allows managers and owners to plan and control the operation of the company and most importantly to make well informed business decisions.

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