Week 4 the Lemonade Stand

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The Lemonade Stand
September 20, 2011

The Lemonade Stand Financial Analysis
The Income Statement is the financial report that depicts the operating performance of a company (revenues less expenses generated = profit) over a specific period of time and facilitates the analysis of a company’s growth, cost, and profitability. This analysis focuses on the financial analysis of The Lemonade Stand during Season 1 and Season 2. The Balance Sheet is another type of financial statement used by a company to see a snapshot of the company's financial position at a particular point in time. It lists the value of the company's assets followed by its liabilities. A balance sheet can be summed up by a simple equation: Assets = Liabilities + Owners' Equity

To better understand how a balance sheet works, we can review the steps the balance sheet for The Lemonade Stand has gone through so far. When my partner and I first started The Lemonade Stand, we had $40 in cash, therefore, the balance sheet equation looked like this: $40 cash = $0 Liabilities + $40 Owner's Equity

Whenever a financial transaction occurs, both sides of the equation still have to balance; hence the name balance sheet. After we purchased supplies for The Lemonade Stand, the assets changed, but the liabilities side of the balance sheet remains the same. $22.50 in supplies + $17.50 cash ($40 total assets) = $0 Liabilities + $40 Owner's Equity The balance sheet’s fundamental purpose of the balance sheet is to describe a company's assets and then the claims on those assets, also known as liabilities. On the first day selling lemonade, we sold 58 cups of lemonade at 60 cents a piece for a grand total of $34.80 in revenue. To determine what we earned in profit, we put together an income statement. Sometimes income statements are referred to as profit and loss statements or P&Ls. An income statement takes the difference between a company's revenues and its expenses to determine net income or profit over a certain period of time. Revenues - Expenses = Net Income

In our case, we have $34.80 in revenue and $22.50 in expenses. One could argue that we should price in labor costs (you should be paid for the time you spent making and selling lemonade), but for now, we'll just look at supply expenses. The Lemonade Stand’s income statement for its first day of operations would look like this: $34.80 Revenue - $22.50 Expenses = $12.30 Net Income

If we compare Season 1 to Season 2 of The Lemonade Stand, we see that the numbers are higher. Typically, this means that you are generating more money through your company. The Balance Sheet and Income Statement for Season 1 and Season 2 look like this: Balance Sheet|  |  |  | Season 1|  |  | Season 2| Assets|  |  |  |  |  |  |  |

 |  | Cash| $| 197.60|  | $| 450.50|
 |  | Inventories| $| 2.47|  | $| 0.75|
 |  | Equipment| $| 17.25|  | $| 17.25|
 |  | Total Assets| $| 217.32|  | $| 468.50|
 |  |  |  |  |  |  |  |
Liabilities|  |  |  |  |  |  |  |
 |  | Account Payables| $| 41.00|  | $| 44.50|
 |  | Total Liability| $| 41.00|  | $| 44.50|
 |  |  |  |  |  |  |  |
Equity|  |  |  |  |  |  |  |
 |  | Owner Capital| $| 40|  | $| 40|
 |  | Retain Earnings| $| 136.32|  | $| 384.00|
 |  | Total Equity| $| 176.32|  | $| 424.00|
 |  |  |  |  |  |  |  |
 |  | Total Equity and Liabilities| $| 217.32|  | $| 468.50| | | | | | | | |
Income Statement| | Season 1| Season 2|
| | | |
Revenue| | $ 197.60 | $ 450.50 | Expenses| | $ 61.28 | $ 66.50 | Earnings| | $ 136.32 | $ 384.00 | The best way to analyze the financial health of the company is to look at the ratios for Seasons 1 and 2: Ratio Type| Ratio Formula| Season 1| Season 2|

ROE| net...
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