Case Analysis_Luka's Snowboards (B)_Roberts

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Olympic College *

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Feb 20, 2024

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Luka’s Snowboards (B) Part 1: Review the Who/What/Why/When. WHO is the decision maker? Luka WHAT is the issue at hand (decision to make, problem to solve, opportunity to seize)? What type of business to open WHY has the issue arisen now? What is its significance to the organization? Luka is graduating soon and must pay bills WHEN does the decision maker have to decide, resolve, act or dispose of the issue? What is the urgency to the situation? As soon as possible Part 2: Conceptual questions 1. Explain what accounts receivable is and why it is listed with current assets. Accounts receivables are essentially invoices that are owed to the business. For example, Luka’s friend wanted to buy a snowboard but could not afford it. Luka sold her the snowboard with the expectation that she would pay him by the end of August. This sale is not officially complete and will sit in accounts receivable until the bill is paid. 2. Why is inventory a current asset and the waxing kit a non-current asset? Inventory is stock or goods that will be sold within the current fiscal year. The waxing kit is a tool that will be used over multiple years. 3. Explain what retained earnings are and why they are in the owners’ equity section. Retained earnings are profit that is being reinvested into the business. For example, Luka is taking his operating income and investing it all back into his business. 4. What is the difference between inventory and COGS? Inventory is the current stock that is available to be sold. The cost of goods sold is the cost of creating or purchasing the stock so that it can be sold. 5. What is the difference between the money that Luka’s mom and brother each gave him for the business? The loan from Luka’s parents is a non-current liability - it is a debt that must be repaid at some point. The money that Luka’s brother gave him does not need to be repaid, but rather it has become owner’s equity and Luka’s brother owns a share of the business.

Part 3: Analysis questions. Find the following values on Luka’s balance sheet or income statement and answer the following questions. 1. Does Luka’s amount of accounts receivable seem reasonable based on Luka’s net sales? Why or why not? Yes. It appears to be accurate based on the snowboards Luka has sold and received money for, along with the pending bill owed by Luka’s friend which is considered accounts receivable. 2. If Luka borrowed an additional $100 from his brother, what would happen to total assets? What would happen to owners’ equity? Luka’s cash asset would increase by $100 and his brother’s equity would increase by $100. 3. What values in the case are included in the calculation of net sales? The first 3 snowboards Luka sold, for a total of $697.85; 1 high-end snowboard for a total of $335.95; 3 medium-tier snowboards for a total of $677.85; and the snowboard for Luka’s friend, $225.95. The total net sales are $1,937.60. 4. What is Luka’s gross margin, and do you think he’s making enough on his snowboards? Luka’s gross margin is $924.54. He is making a decent profit – as Professor Cooney said, Luka is making a 25% profit margin. 5. Based on Luka’s accumulated depreciation, how long has Luka had his waxing kit and tools? How do you know? Luka has owned his waxing kit and tools for 1 year. We know this because he purchased the kit and tools for $200 and he expected them to last 2 years. Now, the value of the waxing kit and tools has depreciated to $100 which indicates we are at about the 1 year mark. Part 4: Based on your understanding of the financial statements and your analysis, do you think Luka should continue his online snowboarding business? Why? Yes. I think that Luka has begun a solid foundation for a small business. I noticed that Luka chose to invest his entire operating income back into his business, which indicates to me that Luka is not planning to use this business to pay his living expenses – at least not yet. The case reading does not provide many details about Luka’s current living situation, or if he is employed elsewhere. If Luka is still living at home, perhaps he can continue living there while he works at REI and sells snowboards as a side gig. Another aspect to consider is the reality of this case. Luka’s story is set in 2022, but the selling prices of the snowboards seem low when compared to the current market. I think that Luka could sell high-end snowboards for quite a bit more money, especially in the PNW. Lastly, I think that Luka should pursue his idea of selling snowboards at ski swaps, and build a social media platform to boost his brand.

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