CAPSTONE CASE 1: ECO-PRODUCTS, INC.

End-of-Case Assignments: Suggested Discussions and Analyses

A. Describe Eco-Products’ early history (1990 through 2003). Would you view the firm during that period as being a life-style business, an entrepreneurial venture, or? Why?

Steve Savage and his father founded the company in 1990 with the intent to provide eco-friendly paper and janitorial supplies. They chose to locate the business in Boulder, Colorado, a community known for its support of environmental initiatives and natural products. However, consumers were slow to adopt eco-friendly products. Margins were low and salaries were small. Friends and family supplied funds for business operations. This early history was suggestive of …show more content…

In fact, the firm had a net loss in 2007 due in large part to the nearly $200,000 (actually $186,726) in interest expense associated with the obtaining of a line of credit which was $2,843,242 at the end of December, 2007. As sales “ramp up” in the future, it is important to “spread” the “fixed” and “semi-fixed” operating expenses in order to improve the operating profit margin and the firm’s value.

E. Exhibit 4 presents Eco-Products’ Statement of Cash Flows for 2007. Was the firm building or burning cash in its operating activities? When also considering cash flows from investing activities, was Eco Products in a net cash build or burn position in 2007?

In Chapters 4 and 6 we discussed the preparation of the Statement of Cash Flows. We use the indirect method which begins with an accounting period’s (usually one year) net income (or loss) and adds back non-cash deductions (depreciation and amortization). We then adjust these income statement amounts by changes (between last year and this year) in non-interest bearing working capital accounts shown on the balance sheet to get net