Paper1
Software, Inc.
Seven years ago, Jason Fernando, after 15 years as a public accountant with a major accounting firm, started Software Inc. in 2006. In the preceding two years he had developed a sophisticated cost-accounting software program that became Software’s initial product offering. As the firm grew, Jason intended to develop and expand the software product offerings which would relate to streamlining the accounting processes of medium- to large-sized manufacturing companies.
Software Inc. experienced losses during its first 2 years of operation 2006 and 2007 however, its profits increased steadily from 2008 to the present (2013). The firm's profit streams and dividend payments are summarized in Table l.
Jason started the firm with a $150,000 investment: his savings of $100,000 as equity and a $50,000 long-term loan from the bank. He had hoped to retain his initial total ownership in the company, but after experiencing a $50,000 loss during the first year of operation (2006), he sold 50 percent of the stock to a group of investors to obtain needed funds. Since then, no other stock transactions have taken place. Although he owns only 50 percent of the firm, Jason actively manages all aspects of its activities; the other stockholders are not active in management of the firm. The firm's stock was valued at $4.25 per share in 2012 and at $5.00 per share in 2013.
Jason has just prepared the firm's Income Statement, Balance Sheet, and Statement of Retained Earnings for 2013 as shown in Tables 2, 3, and 4. He has also compiled the 2012 Financial Ratios and their corresponding Industry Averages which are applicable to both 2012 and 2013 and are summarized in Table 5. He is quite pleased to have achieved record earnings of $80,000 in 2013, but is concerned about the firm's cash flows. Specifically, he is finding it more and more difficult to pay the firm's bills in a timely manner and generate cash flows. To gain insight into these cash flow problems, Jason is
Seven years ago, Jason Fernando, after 15 years as a public accountant with a major accounting firm, started Software Inc. in 2006. In the preceding two years he had developed a sophisticated cost-accounting software program that became Software’s initial product offering. As the firm grew, Jason intended to develop and expand the software product offerings which would relate to streamlining the accounting processes of medium- to large-sized manufacturing companies.
Software Inc. experienced losses during its first 2 years of operation 2006 and 2007 however, its profits increased steadily from 2008 to the present (2013). The firm's profit streams and dividend payments are summarized in Table l.
Jason started the firm with a $150,000 investment: his savings of $100,000 as equity and a $50,000 long-term loan from the bank. He had hoped to retain his initial total ownership in the company, but after experiencing a $50,000 loss during the first year of operation (2006), he sold 50 percent of the stock to a group of investors to obtain needed funds. Since then, no other stock transactions have taken place. Although he owns only 50 percent of the firm, Jason actively manages all aspects of its activities; the other stockholders are not active in management of the firm. The firm's stock was valued at $4.25 per share in 2012 and at $5.00 per share in 2013.
Jason has just prepared the firm's Income Statement, Balance Sheet, and Statement of Retained Earnings for 2013 as shown in Tables 2, 3, and 4. He has also compiled the 2012 Financial Ratios and their corresponding Industry Averages which are applicable to both 2012 and 2013 and are summarized in Table 5. He is quite pleased to have achieved record earnings of $80,000 in 2013, but is concerned about the firm's cash flows. Specifically, he is finding it more and more difficult to pay the firm's bills in a timely manner and generate cash flows. To gain insight into these cash flow problems, Jason is