Silver Cloud Computing is a company that provides cloud computing services. The
ID: 2542484 • Letter: S
Question
Silver Cloud Computing is a company that provides cloud computing services. The company commenced operations on March 1, 2016. It acquired financing from the issuance of common stock for $40,000,000 and issuance of 4% bonds that mature in 2026 for $30,000,000. The income statements and balance sheets for the first two years are provided in a separate Excel spreadsheet. All amounts are in thousands.
Required:
The Chief Executive Officer (CEO) is interested in increasing sales and decreasing expenses. You have been requested to prepare a report that provides analysis of the financial statements and recommendations to improve the financial performance of the company. Your report should include the following items:
A. The company was the victim of a cyber attack. It is not yet known the extent of information that was obtained. The company may be subject to lawsuits as a result of the security breach. Discuss the impacts this may have on the company’s financial statements.
B. The CEO would like to pay dividends to the stockholders. Should the company pay dividends to the shareholders and how would this impact the company’s financial statements?
SILVER CLOUD COMPUTING
Income Statements
For the Years Ended February 28, 2018 and 2017
fye 2/28/2018 fye 2/28/2017
(in thousands) (in thousands)
Sales $225,000 $200,000
Sales Discounts 3,375 2,500
Net Sales 221,625 197,500
Wages and Salaries 73,500 70,000
Bad Debt Expense 2,100 2,000
Depreciation 20,000 20,000
Marketing Expense 33,750 30,000
Occupancy Expense 54,000 54,000
Research & Development 22,500 20,000
Total Expenses 205,850 196,000
Income from Operations 15,775 1,500
Interest Expense 1,200 1,200
Income Before Taxes 14,575 300
Income Taxes (40%) 5,830 120
Net Income $8,745 $180
SILVER CLOUD COMPUTING
Balance Sheets
February 28, 2018 and 2017 and February 29, 2016
At Inception
Feb 28 2018 Feb 28 2017 Feb 29 2016
(in thousands) (in thousands) (in thousands)
Cash $55,755 $22,300.00 $10,000
Accounts Receivable 18,000 16,000 -
Net Computer Equipment 20,000 40,000 60,000
Total Assets $93,755 $78,300 $70,000
Accounts Payable $9,000 $8,000 $-
Taxes Payable 5,830 120 -
Long-term Debt 30,000 30,000 30,000
Common Stock 40,000 40,000 40,000
Retained Earnings 8,925 180 -
Total Liabilities & Stockholders Equity $93,755 $78,300 $70,000
Explanation / Answer
On the basis of the cursory reading of the figures, I interptret following measures to reduce expesnes:
The amount of legal expenses to be borne by the company to meet the lawsuit will lead to the reduction of the profit of the company. While the demarrage being paid by the company will also reduce the profit of the company consequently, even may also jeopardize its networth, if the amount is substantially high.
Considering that company have to pay interest on their debts, repay bonds after few years and the busness is still not fully growing, it is advised not to pay dividend and invest the money in improving services.
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