Star Essay example

850 Words Nov 24th, 2013 4 Pages
Summarize the case in one or two paragraphs.

Polar Sports, Inc is located in Littleton, Colorado where it manufactures fashion skiwear. The production of skiwear has a unique design where they use special synthetic material that improves insulation and durability. In order to develop market share in a competitive industry Polar Sports, Inc must develop new fabrics and use innovative patterns. Between September and January the company generates over 80% of sales and they depend on seasonal production to respond on time to customers orders. Throughout these months Polar Sports, Inc must quickly increase production by hiring and training additional workers, meaning that they often pay them overtime. There have been some concerns from
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Due to the 30 days payment term the monthly payment of $495,000 will go to accounts payable for one month.

Also, another factor to think about is that end inventory is calculated as; End Inventory=Beginning Inventory+ (Units Produced-Units Sold)* Cost per Unit. This means that under a level production the units produced is constant each month.

Mr. Weir predicted that profits, inventories, accounts receivable and accounts payable would change as a result of a move to level production, however he was not sure about the overall impact on funds inflows and outflows would be.
Also, another factor to consider is that there would be an increase in storage and handling cost. This will be deducted from net income in pro forma income statement.

3. Prepare pro forma income statement, balance sheets and cash flow statement to estimate the amount of funds required and the timing of the needs under level production. Does Polar need more than $4 million in short-term financing in any given month?

Only pro forma balance sheet and income statement not cash flow

4. Think about the concern of Polar’s bank. As the banker, would you be willing to extend the line of credit of more than $4 million to finance level production? Why or why not?

As a banker I would not want to extend the line of credit to more than $4 million because the risk of overall impact on funds

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