| Course | FIN-3140 Small Business Finance |
|---|---|
| Module | Module 3 |
| Paper type | Written assignment 3: profitability and working capital |
| Length | About 577 words, 5 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | B.S.B.A. in Finance |
| Updated | October 2026 |
Free sample paper for FIN 3140 Module 3
Ninety-Four Percent and Still Nervous in April: Profitability and Working Capital at Cape Point Whale Watch
Student Name
B.S.B.A. in Finance, Thomas Edison State University
FIN-3140: Small Business Finance
Mentor Name
Month Day, Year
Ninety-Four Percent and Still Nervous in April: Profitability and Working Capital at Cape Point Whale Watch
Problem 1: Profitability
A return on equity near 94 percent looks remarkable, but the DuPont breakdown shows where it comes from. Berger and Udell (1998) found that small firms depend heavily on bank credit lines and trade credit, so liquidity planning is central for a seasonal business.
| Measure | Calculation | Result |
|---|---|---|
| Operating margin | $212,070 / $1,247,000 | 17.0% |
| Net margin, before owner taxes | $154,670 / $1,247,000 | 12.4% |
| Return on assets | $154,670 / $1,080,000 | 14.3% |
| Return on equity | $154,670 / $165,000 | 93.7% |
Problem 2: The DuPont Breakdown
The margin is healthy and asset turnover is reasonable for a business whose main asset is one boat, but the equity multiplier of 6.55 does most of the work. The return is high because the owner has very little equity in the business, not because the business is unusually profitable. A highly indebted company earns a high return on equity in good years and can lose equity quickly in bad ones (Adelman & Marks, 2014). Return on equity also overstates the owner's return because her $85,000 salary is already deducted; a fairer view adds back a market salary difference, if any, and considers the personal guarantee she has given the bank.
| Component | Calculation | Result |
|---|---|---|
| Net margin | $154,670 / $1,247,000 | 12.4% |
| Asset turnover | $1,247,000 / $1,080,000 | 1.15 times |
| Equity multiplier | $1,080,000 / $165,000 | 6.55 times |
| Return on equity | 12.4% × 1.15 × 6.55 | about 94% |
Problem 3: Liquidity
The current ratio is $285,000 / $187,000 = 1.52, and the quick ratio, excluding inventory and prepaid insurance, is $230,000 / $187,000 = 1.23. At year end these look adequate. But they are taken in December, when cash from the season is still in the bank and few bills from the off-season have arrived. The more useful test is whether cash can carry the company to May.
Problem 4: The Seasonal Cash Low
From January through April, Cape Point collects only advance bookings while paying about $34,000 a month in fixed costs: insurance, dock lease, loan payments, the shore office and the owner's salary. The winter haul-out and engine service add about $60,000 in February and March.
April is the low point, with $59,000. That would be enough in a normal year, but a single unplanned repair, such as a failed generator at $45,000, or a cold, wet May that delays bookings would push the company below its minimum cash balance of $40,000.
| Month | Cash in | Cash out | Ending cash |
|---|---|---|---|
| December 31 | | | $212,000 | |
| January | $12,000 | $34,000 | 190,000 |
| February | 15,000 | 64,000 | 141,000 |
| March | 18,000 | 64,000 | 95,000 |
| April | 22,000 | 58,000 | 59,000 |
| May | 165,000 | 98,000 | 126,000 |
Problem 5: Sizing a Line of Credit
A seasonal line of credit funds temporary needs that the season itself will repay. Testing a stressed case, a $45,000 repair in March and May bookings 30 percent below normal, cash would fall to about $14,000 at the end of April and $30,000 at the end of May, before recovering in June. To keep at least $40,000 on hand with room for a second shock, the owner should arrange a $120,000 revolving line, drawn only when needed and fully repaid by August, as most seasonal lenders require a "clean-up" period each year. Petersen and Rajan (1994) found that small firms with established banking relationships pay less and have more reliable access to such credit, which argues for arranging the line with the bank that already holds the boat loan.
References
Adelman, P. J., & Marks, A. M. (2014). Entrepreneurial finance (6th ed.). Pearson.
Berger, A. N., & Udell, G. F. (1998). The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle. Journal of Banking & Finance, 22(6-8), 613-673. https://doi.org/10.1016/S0378-4266(98)00038-7
Petersen, M. A., & Rajan, R. G. (1994). The benefits of lending relationships: Evidence from small business data. Journal of Finance, 49(1), 3-37. https://doi.org/10.1111/j.1540-6261.1994.tb04418.x
Reading the FIN 3140 Module 3 assignment instructions
Module 3 of FIN-3140, Profitability and Working Capital, carries one of the six question-and-problem written assignments that share 36 percent of the grade. The set asks for margins and returns, usually a DuPont split, liquidity ratios and a working capital plan covering cash, receivables, stock and seasonal borrowing. Seasonal businesses are a common setting for the working capital problems. The figures here continue a composite company; your own problems will give their data, and Berger and Udell's survey frames the credit options open to firms this size. Expect ratio calculations and questions about managing working capital through a seasonal cycle.
Inside the FIN 3140 Module 3 example
A table of four profit measures opens the set, and the second problem takes return on equity apart to find the source of its strength. Problem 3 computes liquidity ratios and explains why a December snapshot misleads. Problem 4 builds a month-by-month cash table to locate the low point, and Problem 5 stress-tests that low point and sizes a seasonal line of credit, with research on why the existing bank is the right lender. Ratios are compared with prior years or an industry benchmark so each number means something. The working capital section traces cash through the season month by month.
FIN 3140 Module 3 rubric: what earns full marks
Ratios read against a seasonal business earn the most here. Mentors look for correct ratio calculations, interpretation of what drives each result and working capital planning that follows from the business's actual cash pattern. Using the DuPont breakdown to explain a high return, and testing a cash plan against a bad case, show the analytical depth the module asks for. Showing every calculation, in tables where possible, lets the mentor credit correct steps. Answers that compute ratios correctly and explain the seasonal pattern behind working capital needs show the module's understanding. Recommendations on the credit line follow from the seasonal pattern. Ratio answers that explain what each number means for a seasonal business, such as why the current ratio dips in winter, show judgment beyond calculation.
FIN 3140 Module 3 help from the desk
Ratio problems lose points for celebrating a high return on equity without asking what drives it, for reading year-end liquidity ratios as if they held all year and for sizing a credit line to the average need rather than the worst plausible month. Break return on equity into its parts. Build a monthly cash table for a seasonal business. Stress-test the low point and keep a minimum balance. Explain the terms a seasonal line usually carries. A free first sample of your own FIN-3140 Module 3 problems is available on request. Show the formula for each ratio and give the benchmark you compare it with. When a ratio looks unusual, check whether the season explains it before calling it a problem.
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FIN 3140 Module 3 questions, answered
Where can I find a free FIN 3140 Module 3 sample paper?
See above: margins, returns and a DuPont split for a whale-watching boat, liquidity in the off-season and the size of a seasonal line of credit.
What is the DuPont analysis?
A DuPont split shows whether the whale-watching firm's return on equity comes from its margin, how hard its assets work or its borrowing.
Why can a high return on equity be misleading?
It may come mainly from heavy borrowing and small equity, which raises risk, rather than from strong profitability.
What is a seasonal line of credit?
A revolving loan that funds temporary off-season needs and is repaid from in-season cash, often with a required annual paydown.
How do you find a seasonal business's cash low point?
Build a month-by-month cash budget from the end of the busy season and look for the month with the lowest ending balance.