Case Analysis A brief outline of the firm and its industry is given as well as a few tips for your attention. You are given three years’ worth of income statements and balance sheets to examine. You are a financial analyst working for an investment firm. This manufacturer has asked for your firm’s help in raising capital for the upcoming season’s production requirements. It is your job to analyze the financial statements and comment to the investment brokers on this firm’s current financial situation. It is late July and the firm’s financial statements (representing the fiscal year ending June 30) have just been released. For this project you must recreate the attached financial statements on separate worksheets in an Excel workbook. Then on another worksheet you must create formulas to calculate the financial ratios that can be derived from the given financial statements. These ratios are to be calculated using formulas in the cells that are linked to the other worksheets: no credit will be given if the ratios are calculated by hand and entered into the cells.You must determine which ratios can be calculated with the information given based on the ratios given in your textbook. There is enough data for you to calculate liquidity asset management leverage and profitability ratios. You must calculate the Du Pont ratio analysis separately. All three years’ worth of ratios must be calculated and should be presented in chronological order for you to do trend analysis. Next you must write a one-page paper discussing the findings of your ratio analysis. You must include not only the current situation but also how the ratios have changed over the past three years (trend analysis). Any recommendations you can make as to what the firm can do to correct any problem areas would make you look better in the eyes of your superiors. Sports Inc. Outdoor Sports Inc. is a manufacturer of surfboards wind surfers and related equipment. The company was started by two surfers tinkering in their garage with surfboards of their own design. The company has grown rapidly cashing in on the increasing popularity of wind surfing. Outdoor Sports’ business is highly cyclical. Inventory is built up during the late fall and winter months and the majority of sales are booked and delivered to distributors during the early spring. Competition among the many manufacturers of this easily made product line is intense. Small manufacturers like Outdoor Sports are under great pressure from major sports equipment makers who have substantial promotional resources at their disposal as well as complementary products countercyclical to the sale of surfing equipment. Brand recognition is an important selling point in this competitive business achieved at considerable expense through sport personality endorsements and other promotional campaigns. What to expect from Outdoor Sports’ financials depends on when they are examined during the fiscal year. At June 30 the company’s fiscal year-end the financials should look most favorable. Receivables inventory payables and working capital borrowings should be at seasonal lows. The firm should be cash rich as it is about to gear up for the next season’s production run. Property plant and equipment should be at some significant level commensurate with the company’s manufacturing demands supported by equity and long-term debt. Sales margins bear close watching. Pricing pressures caused by intense competition can erode them to dangerously low levels. Given the seasonality of the business there may be a cash flow crunch during the winter months. Overall cash flow may be a problem if the business is still growing rapidly and requires outside financial resources to do so. The potential of overproducing during the winter period for a spring sales period that fails to live up to management’s expectations is also a significant risk. OUTDOOR SPORTS INC. Balance Sheet ($000s) June 30 2011 2009 2010 2011 ASSETS Current Assets Cash 182 25 30 Accounts Receivable 338 391 349 Inventory 283 831 1 207 Prepaid Expenses 63 33 11 Other Current Assets 11 8 3 Total Current Assets 877 1 287 1 601 Propert Plant & Equipment Land Buildings & Equipment 842 842 941 Less Accumulated Depreciation 179 226 286 Net land Buildings & Equipment 663 616 655 Total Assets $ 1 540 $ 1 903 $ 2 255 LIABILITIES Accounts Payable Trade 129 283 347 Accounts Payable Other 80 52 61 Accrued Expenses 0 0 0 Short-Term Debt 184 413 745 Income Tax Payable 61 0 0 Total Current Liabilities 454 748 1 152 Long-Term Debt 578 682 869 Total Liabilities 1 031 1 430 2 021 Stockholders’ Equity Capital Stock 275 275 275 Retained Earnings 234 198 (41) Total Stockholders’ Equity 509 473 234 Total Liabilities and Equity $ 1 540 $ 1 903 $ 2 255 Outdoor Sports Inc. Income Statement ($000s) June 30 2011 2009 2010 2011 Sales 2 519 4 914 6 185 Cost of Goods Sold 1 460 2 899 4 172 Gross Income 1 059 2 016 2 013 Operating Expenses 732 1 898 2 060 Depreciation Expense 30 47 61 Operating Income (EBIT) 297 72 (107) Interest Expense 72 107 132 Income Tax Expense 90 0 0 Other Expense 47 0 0 Net Income $ 89 $ (36) $ (239)
