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Chemalite Inc Memo Cash is King Accountants Memo To: Stockholders of Chemalite, Inc. From: Jon Smart CC: Tim Mofit Date: 4/12/2008 Re: Financial Performance of Chemalite,
Chemalite, Inc. Chemalite, Inc. Bennett Alexander has invented a glow light using a series of chemicals into a contraption he calls Chemalites. He starts up his
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Chamlite Question 1 Chemalite, Inc. Summary of Transactions Jan. 2, 2003 through June 30, 2003 Date Cash Patent Machinery & Equipment Inventory Owner's Equity Jan.
23, 1996, "Toy World Inc." 3.Harvard Business school Case 9-195-130, revised August 1, 1995, "Chemalite Inc". (B) 4.Financial calculator. 5.Excel templates provided
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Chemalite, Inc.
Bennett Alexander has invented a glow light using a series of chemicals into a contraption he calls Chemalites. He starts up his business by getting $500,000 from investors and he tries to put his invention on the market. But by the end of 2003, with operations in full swing for a good six months, Chemalite, Inc. is seeing its cash balance drop tremendously, which Alexander and his investors view as a negative. Even though they thought their business was doing well, the numbers they are reading indicate otherwise. We have to determine how these numbers reflect the true nature of the company.
Issues
1. Should they continue with business in 2004 and beyond?
2. Do they have a positive cash flow?
3. Are they profitable?
Decisions
I do believe that Chemalite, Inc. should continue on because they were both profitable and had a positive cash flow. And there are all three answers to the issues in one sentence. Plus, the prototype value will soon increase and the Olympic Games Athens 2004 just placed a huge order with the company, which will both bring in a big profit and help promote the product. The future is looking bright for this company, at least in the short run. Alexander and the investors have to examine the true nature of the company and not simply its increase or decrease in cash from year to year.
Analysis
Chemalite, Inc. is true profitable. Even with the balance being $230,000 at the end of June 2003, this is a positive cash flow due to all of the investment activities the company has put in; refer to Sample III. Things are looking way up for this young company. Their income statement at the end of 2003, Sample VI, shows a 28% gross profit and a 5.2% increase in net income. This proves the stability and profitability of the company.
You can even compare their balance sheets from the end of June 2003 to the one given at the end of the year (Sample II and VII). At the...
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