Continuing Cookie Chronicle 1
Continuing Cookie Chronicle
(Note: This is a continuation of the Cookie Chronicle from Chapter 1.)
CCC2 After investigating the different forms of business organization, Natalie Koebel decides to operate
her business as a corporation, Cookie Creations Inc., and she begins the process of getting her business
running.
While at a trade show, Natalie is introduced to Gerry Richards, operations manager of “Biscuits,” a
national food retailer. After much discussion, Gerry asks Natalie to consider being Biscuits’ major supplier
of oatmeal chocolate chip cookies. He provides Natalie with the most recent copy of the financial
statements of Biscuits. He expects that Natalie will need to supply Biscuits’ Watertown warehouse with
approximately 1,500 dozen cookies a week. Natalie is to send Biscuits a monthly invoice, and she will be
paid approximately 30 days from the date the invoice is received in Biscuits’ Chicago office.
Natalie is thrilled with the offer. However, she has recently read in the newspaper that Biscuits has a
reputation for selling cookies and donuts with high amounts of sugar and fat, and as a result, consumer
demand for the company’s products has decreased.
Instructions
Natalie has several questions. Answer the following questions for Natalie.
(a) What type of information does each financial statement provide?
(b) What financial statements would Natalie need in order to evaluate whether Biscuits will have
enough cash to meet its current liabilities? Explain what to look for.
(c) What financial statements would Natalie need in order to evaluate whether Biscuits will be able to
survive over a long period of time? Explain what to look for.
(d) What financial statement would Natalie need in order to evaluate Biscuits’ profitability? Explain
what to look for.
(e) Where can Natalie find out whether Biscuits has outstanding debt? How can Natalie determine
whether Biscuits would be able to meet its interest and debt payments on any debts it has?
(f) How could Natalie determine whether Biscuits pays a dividend?
(g) In deciding whether to go ahead with this opportunity, are there other areas of concern that
Natalie should be aware of?
(a) The balance sheet reports the assets, liabilities, and
stockholders’ equity of a company at a specific date. The income
statement presents the revenues and expenses and resulting net
income or net loss of a company for a specific period of time. The
(b) By looking at the balance sheet and the cash flow statement and
calculating liquidity ratios we can measure a company’s short
(c) By looking at the balance sheet and the cash flow statement and
calculating solvency ratios we are able to measure a company’s
(d) By looking at the income statement we can determine if Biscuits
is profitable. If revenues earned by Biscuits exceed expenses
incurred, then Biscuits is profitable. Profitability ratios can
(e) By looking at the balance sheet we can determine if Biscuits has
any debt. By looking at the balance sheet and cash flow
statement and calculating solvency ratios we are able to determine
(f) By looking at the statement of cash flows we can determine
whether Biscuits has paid any dividends to its shareholders.
(g) Be aware that financial statements of Biscuits provide a historical
perspective of what has already taken place. The financial
statements may prove to be a good indicator of what will happen
in the future but remember that is not necessarily guaranteed.
Consumer tastes change and as a result the demand for Biscuits’
product may also change.