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Income statement for fish farming business for 2002

In May of 2000 you graduated from Florida State and moved back home to Geneva. After a summer of fruitless interviewing you decided to start your own business. You have a degree in marine biology. Thus, in the fall of 2000 you became a fish farmer. You were aware of the demand for Salmon to supermarkets and restaurants. You were also aware of the decrease in Salmon populations primarily due to pollution. Therefore, you borrowed some money from your parents and acquired some land out in Elburn. With the help of your brother you modified some fish tanks you purchased to breed and grow Salmon. Being in the sciences you did not take any accounting classes at Florida State.

In addition, you have been very busy both raising and selling Salmon and you have not been paying much attention to the financial side of the business. Your sister has been trying to help with the finances but she is going through an ugly divorce and custody battle and has not had the time to prepare any type of financial statements. The other day you received a phone call from Jim Diggins, a fish food supplier who stated that he had not received payment for the food his company delivered over 2 months ago. Later that afternoon you received a call from Tammy Shaw asking why you had not paid the bill for the cleaning services provided by her company. However, the most embarrassing event occurred last night, at Portillo's, when you ran into Hank, an old fraternity brother. Hank told you about his new car, new home, and great new job. He asked you how you were doing? You told him about the fish farm and all the new sales leads you had. Hank was surprised. He said, "Wow, I had no idea you could make good money in fish farming. Okay so what is your gross margin? What kind of mark-ups are you getting?"

Both of these questions caught you by surprise because you had no idea about margins and mark-ups. Later at home you thought about the business and realized that you had no idea how you were doing. While you knew a lot of information about the company you really had no idea if the company was successful or not. Determined to get your hands around the financial situation for 2002 you sat down at your desk to calculate how the company was fairing. The following information is the financial information about the company. You need to organize it in a manner which will allow you to determine if the company is successful or not. (Hint: One indicator of success is whether you are earning more from selling Salmon then what it is costing you to raise and sell the Salmon.) Sales of Salmon in 2001 were $4,589,750. For 2002 sales increased by 37%. Most of your customers take 70 days to pay. During the year you purchased 8 new tanks each costing $185,000. The sales representative told you the tanks should last for 10 years. Thus, you now have 16 tanks all of which have cost $185,000. The first 6 tanks were purchased in 2000. 2 more tanks were purchased in 2001. The company has 6 full time employees. Bill, Linda, Tina, Ruth, Gene, and Kay.

They all have different jobs ranging from feeding the Salmon, testing water conditions, breeding the Salmon, shipping the Salmon, and billing the customers. Bill and Linda make $85,000 a year while the rest make $55,000. You have been paying yourself $900 a week. You paid your brother and sister $10,000 each for 2002. Your utility bills have been increasing with the addition of the new tanks. Your utilities cost $980,120 last year and this year you have seen an increase of 65%. One of your largest costs in the purchase of Salmon eggs. This last year you purchased 1,100,000 eggs at a cost of $2.50 per egg. You purchase eggs throughout the year. It takes about 11 months for the Salmon to grow to the necessary size to be sold. It is likely that 5% of the eggs will perish before they can be sold. In addition, your Salmon food costs were $954,000. $50,000 of this has not been paid yet. Because of the need for sanitary conditions you hired a specially cleaning service to maintain the premises.

The service costs $75,000 a quarter. Your parents lent you $300,000 to purchase your land and facility. You have been paying them interest of 5% annually. You hope to pay them back the $300,000 in 5 years. The real estate taxes on the land in Elburn are paid twice a year. Each payment is $2,500.

Please indicate whether Oxford Inc. was successful in 2002 or not. Please provide evidence and any calculations necessary to back up your position. (Note: A company's success is not a solely black or white determination. Therefore, there is no one correct answer.)

Solution Preview

See attached analysis in Excel file.

This company did not do well in 2002. The owner ...

Solution Summary

In the Excel format, the income statement is presented together with comprehensive notes of explanation. A conclusion about the year of 2002 and plans for the future are included in the solution.