Northern Rush - Analysis on Balance Sheet

Management Control

Group 5

Manuel Bullón Alonso

Manuel Juan Juan

Fei Li

Laura Tallón-Montes Pachec

Northern Rush Case Conclusion

In this case our analysis examines a projection of the first 3 years of NR by evaluating its Profit and Loss statement, Cash Budget, and Balance Sheet. James and his 6 partners were going to invest 20,000 dollars, in which James would hold 50% share.

We suppose that NR was going to sell 100 units in the first year, 125 units in the second year and 150 in the third year.

Analysis on Balance Sheet

From the first 3 years´ balance sheet we can see that according to their plan the total assets and equity would both grow but the growth rate showed a tendency of declining.

We can also see that the equity ratio would be up to 96.6% in the first year and it would keep growing the following two years. It suggests that NR could not have other financing means, nor the factories would let it purchase with any delayed payment, as it was mentioned in the case. The liabilities only would come from taxes. It also suggests that in this way the growth of NR would be slow if it wouldn't introduce other financing means.

We can observe that the growth of cash would be very bumpy. It was because we planned that NR would purchase more merchandise for the next year as there was a minimum order quantity that required the factories. That´s why the cash would be low but the inventory at the end of the first year would be high, as we see in the balance sheet of Year 1. And in Year 2 less cash would be used for purchasing. The high increase of the cash would due to the much higher cash inflow than outflow. And in the 3rd year, more cash would be used in purchasing inventory, so the cash growth would lower. This also explains why the inventory growth would be bumpy too.