CASE STUDY 1: FINANCIAL STATEMENTS OF BERTHA’S BRIDAL BOUTIQUE
CASE STUDY 2: FINANCIAL STATEMENTS OF BERTHA’S BRIDAL BOUTIQUE
Lisa Borgese School of Business, Liberty University
BUSI 532: Advance Financial Statement Analysis
Dr. Debra Touhey June 29, 2023
CASE STUDY 1: FINANCIAL STATEMENTS OF BERTHA’S BRIDAL BOUTIQUE
Introduction
There are many useful tools that are used to evaluate a company’s performance. One
such tool would be the statement of cash flows which can give is the analysts insight into a
corporation's “liquidity, financial flexibility, profitability and overall risk” (Collings, 2016)
Through evaluating Bertha’s Bridal Boutique’s statement of cash flows, specifically the
operating; investing and financing activities, one can create an overall assessment of the
company’s financial health and operation approach.
Findings
To determine the amount of cash collected during the 20X1 for Bertha’s Bridal
Boutique’s, one must take the account receivable, “Accounts Receivable-Net” from the assets
category of the balance statement and deduct the “Net Credit Sales” from the income
statement.
Table 1:
Cash collected during 20X1, accounts receivable.
Illustrated in Table
1, total cash that
was collected from
accounts receivable in 20X1 was calculated by subtracting Account Receivable-Net difference
between 20X0 and 20X1, then adding the total to the Net Credit Sales which totaled the
amount of $7,133,000.
Next to determine cash payments during 20X1 on accounts payable to suppliers, one
uses the “Accounts Payable” item located in the liability section of the balance sheet.
Table 2:
December 31,
20X1 20X0
Accounts Receivable-Net $692,000 $625,000
Net Credit Sales $7,200,000 -
Cash Collected $7,133,000
CASE STUDY 1: FINANCIAL STATEMENTS OF BERTHA’S BRIDAL BOUTIQUE
Cash payments on accounts payable to suppliers
December 31,
20X1 20X0
Accounts Payable $399,000 $451,000
Total Cash payment to Suppliers $52,000
Accounts payable to suppliers is calculated by subtracting the 20X1 amount from the
20X0 amount resulting in a total cash payment of $52,000.
Next to determine cash provided by operations for 20X1, one must use “Cash” and
“Prepaid Expenses” from the balance sheet to calculate the total cash provided.
Table 3:
Cash provided from operations for 20X1.
December 31,
In Table 3, to calculate the total
cash provided, one must
calculate
the difference between
20X0 Cash and Prepaid Expenses from the amounts provided in 20X1, Cash –
($450,000$364,000) and Prepaid Expenses ($70,000-$50,000). Take note that the Cash
increased by
$86,000 and Prepaid Expenses decreased by $20,000. Then one deducts the amount of Prepaid
Expenses from the amount of Cash calculated, coming up with the sum of $106,000 in total
cash provided.
20X1 20X0
Cash $450,000 $364,000
Prepaid Expenses $50,000 $70,000
Total Cash Provided $106,000
CASE STUDY 1: FINANCIAL STATEMENTS OF BERTHA’S BRIDAL BOUTIQUE
Table 4:
Cash inflows from financing activities, 20X1.
December 31,
To determine the
cash inflow from
financing activities for 20X1, one must calculate the difference between the 20X1 and 20X0
from Common Stock, $1,400,000 - $1,300,000. This difference between the two amounts
represents the increase in positive cash inflow of $100,000.
Table 5:
Cash outflows from investing activities, 20X1.
December 31,
20X1 20X0
Long-Term Assets $150,000 $20,000
Property, Plant & Equip (PP&E) $1,622,000 $815,000
Cash Outflows $937,000
Cash outflows from investing activities is determined by calculating the difference
between 20X1 and 20X0 amounts in Long-Term Assets and Property, Plant & Equipment (PP&E).
Taking the amounts from the balance sheet, one can calculate that $130,000 in longterm
investments ($150,000 - $20,000) and $807,000 in PP&E ($1,622,000 - $815,000), combined to
calculate the total cash outflows total of $937,000.
20X1 20X0
Common Stock $1,400,000 $1,300,000
Cash inflow $100,000
CASE STUDY 1: FINANCIAL STATEMENTS OF BERTHA’S BRIDAL BOUTIQUE
Analysis
From the information provided in the finding portion of this case study, one can make a
few examinations regarding the Bertha’s Bridal Boutique. First, with an increase in accounts
receivable in 20X1 from 20X0, this can create several risks. “Accounts receivable determine the
amount of money due to a company in the short-term.” (Rivsine et al., 2021) Outstanding cash
that is not collected from one’s customers, for an extended period, has the risk of turning into
bad debt. Selling products through credit may look good on paper, may give the appearance of
increased revenue, a corporation must have actual cash to pay down debt and maintain
operations. A company that allows their accounts receivable to get too high, runs the risk of
having a shortage of cash.
However, the analysis also shows that the company was able to decrease their accounts
payable from 20X0 to 20X1. This information proves that the company is paying off its debt
before purchasing anything further on credit. According to Le, “this can imply that the firm can
increase profitability by optimizing its working capital.” (Le, 2019)
As for cash flows, this can also indicate how a company’s profit-making activities are
performing. (Revsine et al., 2021) In this case, the Bertha’s Bridal Boutique’s balance sheet
shows a positive cash flow in its operations, which indicates that the company is sustainable. In
the areas of financing and investing activities, Bertha’s Bridal Boutique exhibits positive cash
inflows in both, which indicates that the company is focusing on purchasing and investing
equipment to ensure that their assets remain in good condition. In return will put the company
in a position of strong financial strength and growth.
Conclusion
After a careful analysis of Bertha’s Bridal Boutique’s cash flow statement, it appears as
though the company is doing financially well. The corporation seemed to manage the increase
in their accounts receivable by increasing their positive cash in others areas of the company.
CASE STUDY 1: FINANCIAL STATEMENTS OF BERTHA’S BRIDAL BOUTIQUE
Based on their balance sheet, it appears that Bertha’s Bridal Boutique focused on paying off
their accounts payables and while investing in new PP&E. The use of this strategy has allowed
the company to increase their assets and net income in 20X1 while controlling their liabilities.
CASE STUDY 1: FINANCIAL STATEMENTS OF BERTHA’S BRIDAL BOUTIQUE
References
Collings, S. (2016). UK GAAP Financial Statement Disclosures Manual. John Wiley & Sons,
Ltd.
Le, B. (2019). Working capital management and firm’s valuation, profitability and risk: Evidence
from a developing market, International Journal of Managerial Finance, Vol. 15 (2), 191-
204. https://doi.org/10.1108/IJMF-01-2018-0012
Revsine, L., Collins, D., Johnson, W.B., Mittelstaedt, H.F., & Soffer, L. (2021). Financial reporting
and analysis (8th ed.). New York: McGraw-Hill Education
Powered by TCPDF (www.tcpdf.org)
