Onde Audio

Updated 27th March, 2011

TERENCE TSE

“I would be very happy to sort out the company’s finances for you,” said Olivia Blokpoel as her
interview at Onde Audio concluded.

Background

Before this conversation, Olivia spent 11 years working in the finance department of a major German
automobile manufacturer based in Stuttgart, Germany. During this time, she realised that her heart was never
in working for large firms; instead, she always held the belief she would be happy and excel in a smaller
company and entrepreneurial setting. She decided it was finally time to change the direction of her career when
she was offered the opportunity to work as the Finance Director of a start-up company called Onde Audio.

Onde Audio

Based in Brussels, Belgium, Onde Audio is a company that distributes high-end high fidelity (hi-fi)
audio devices and accessories to various retailers via the Internet. As a self-proclaimed audiophile, Olivia
believed that she would have a great deal more enthusiasm for working for such a business than she had for
automobile manufacturing. Indeed, the fact that the position would be in her hometown made this opportunity
even more appealing.

As Onde Audio is a small company, there was no publicly available information. This meant that Olivia
was not able to learn much about the financial situation of the company until the day she attended her interview.
As the conversation with Denis van Wahl, the managing director of Onde Audio, progressed, three facts became
clear to her: the first was that the Finance Director position was a new challenge she would gladly accept; the
second was that Onde Audio offered her an ideal working environment; the third was far less positive: it turned
out that the finance of the company had been neglected.

When Olivia asked for the financial information in order to understand the company’s full situation,
she was provided with just an incomplete balance sheet (total assets and total liabilities and shareholders’ equity
were not balanced), and an income statement (see exhibits 1 and 2). It immediately occurred to her that the
current problem with the balance sheet was potentially due to the absence of a cash flow statement.

In order to develop a full view, Olivia asked whether there were financial issues that she ought to be
aware of. Denis shared with her that the owner was paid a dividend of €8,000 for the year. Additionally, the
company just purchased €20,000 worth of new servers in order to grow the business further.

Dr Terence Tse prepared this case. It is developed for class discussions and is not intended to serve as endorsement, primary data source
or illustration of effective or ineffective handling of an administrative situation.

1
Decision, decision, decision…

The interview went extremely well; indeed, a job offer was made to Olivia on the spot. Since the
interview took place on a Friday, she had the weekend to decide whether she ought to accept the position or
not. On her journey home she realised that to make the correct decision, she would need to construct the cash
flow statement and in doing so develop a better picture of the company’s current financial situation. As the sun
started to set on the horizon, she wondered whether Onde Audio would represent a new horizon for her career.

Exhibit 1 Balance sheets of Onde Audio

B a la nc e S he e t
201 0 201 1 201 0 201 1
Current As s ets Current Liabilities
Cas h € 1 9,1 80 Ac c ounts payable 204,000 21 2,000
Ac c ounts rec eivable 262,000 280,000 Utilities payable 7 ,600 7 ,3 00
Inventory 93 ,880 1 00,000 S alary and wages payable 3 ,900 4,000
To ta l c urre nt a sse ts € 3 7 5 ,060 € 3 80,000 Inc ome tax payable 2,840 2,900
To ta l c urre nt lia bilitie s € 21 8,3 40 € 226,200

F ixed As s ets Long-term liabilities

E quipment 64,000 7 6,000 Long-term debt 68,800 61 ,600
To ta l fix e d a sse ts € 64,000 € 7 6,000 To ta l lo ng -te rm de bt € 68,800 € 61 ,600

S hareholders ' equity

Capital s toc k 96,000 96,000
R etained earnings 5 5 ,920
To ta l sha re ho lde rs' e quity € 1 5 1 ,920 € 96,000

To ta l sha re ho lde rs' e quity

To ta l Asse ts € 43 9,060 € 45 6,000 a nd lia bilitie s € 43 9,060 € 3 83 ,800

Exhibit 2 Income statement of Onde Audio

201 1

R evenue € 87 2,5 00
Cos t of Goods S old 444,240
Gro ss P ro fit 428,260
R ent expens e 48,240
Utilities expens e 24,1 40
P hone expens e 2,440
S a la ry a nd wa ge expens e 260,000
Ma rketing expens e 1 6,400
EB ITDA 7 7 ,040
Deprec ia tion 8,000
EB IT 69,040
Interes t (inc ome) expens e 3 ,600
EB T 65 ,440
Inc ome ta xes 22,920
Ne t inc o m e € 42,5 20