Below are the financial statements for a manufacturer of athletic equipment. Usi
ID: 2478569 • Letter: B
Question
Below are the financial statements for a manufacturer of athletic equipment. Using your financial statement analysis expertise, tell me five things of interest and/or concern regarding this company.
Balance Sheet (in millions)
2011
2010
Assets:
Current:
Cash and Equivalents
$ 1,955
$ 3,079
Short-Term Investments
$ 2,583
$ 2,067
Accounts Receivable
$ 3,212
$ 2,724
less: Allowance for Doubtful Accounts
$ (74)
$ (74)
Inventories
$ 2,715
$ 2,041
Deferred Income Taxes
$ 312
$ 249
Prepaid Expenses and other Current Assets
$ 594
$ 873
Total Current Assets
$ 11,297
$ 10,959
Non-Current Assets
Property, Plant and Equipment
At Cost
$ 4,906
$ 4,390
Less: Accumulated Depreciation
$ (2,791)
$ (2,458)
Net Property, Plant and Equipment
$ 2,115
$ 1,932
Identifiable Intangible Assets
$ 487
$ 467
Goodwill
$ 205
$ 188
Deferred Income Taxes and other Assets
$ 894
$ 873
Total Non-current Assets
$ 3,701
$ 3,460
Total Assets
$ 14,998
$ 14,419
2011
2010
Liabilities and Shareholder's Equity
Current Liabilities
Current portion of Long-Term Debt
$ 200
$ 7
Notes Payable
$ 187
$ 139
Accounts Payable
$ 1,469
$ 1,255
Accrued Liabilities
$ 1,985
$ 1,904
Income Taxes Payable
$ 117
$ 59
Total Current Liabilities
$ 3,958
$ 3,364
Non-Current Liabilities
Long-Term Debt
$ 276
$ 446
Deferred Income Taxes and other Liabilities
$ 921
$ 855
Total Non-Current Liabilities
$ 1,197
$ 1,301
Total Liabilities
$ 5,155
$ 4,665
Shareholder's Equity:
Redeemable Preferred Stock
*
*
Common Stock at Stated Value
Class A convertible
*
*
Class B
$ 3
$ 3
Capital in Excess of Stated Value
$ 3,944
$ 3,441
Retained Earnings
$ 5,801
$ 6,095
Accumulated other Comprehensive Income
$ 95
$ 215
Total Shareholders' Equity
$ 9,843
$ 9,754
Total Liabilities and Shareholders' Equity
$ 14,998
$ 14,419
* denotes less than .5 million
Income Statement (in millions)
2011
2010
Revenues
$ 20,862
$ 19,014
Cost of Sales
$ 11,354
$ 10,214
Gross Margin
$ 9,508
$ 8,800
Demand creation Expense
$ 2,448
$ 2,356
Operating Overhead Expense
$ 4,245
$ 3,970
Total Selling and Administrative Expense
$ 6,693
$ 6,326
Income from Operations
$ 2,815
$ 2,474
Other Expenses (Income)
Interest Expense, net
$ 4
$ 6
Other Income, net
$ (33)
$ (49)
Total Other Expenses (Income)
$ (29)
$ (43)
Income before Taxes
$ 2,844
$ 2,517
Income Taxes
$ 711
$ 610
Net Income
$ 2,133
$ 1,907
Balance Sheet (in millions)
2011
2010
Assets:
Current:
Cash and Equivalents
$ 1,955
$ 3,079
Short-Term Investments
$ 2,583
$ 2,067
Accounts Receivable
$ 3,212
$ 2,724
less: Allowance for Doubtful Accounts
$ (74)
$ (74)
Inventories
$ 2,715
$ 2,041
Deferred Income Taxes
$ 312
$ 249
Prepaid Expenses and other Current Assets
$ 594
$ 873
Total Current Assets
$ 11,297
$ 10,959
Non-Current Assets
Property, Plant and Equipment
At Cost
$ 4,906
$ 4,390
Less: Accumulated Depreciation
$ (2,791)
$ (2,458)
Net Property, Plant and Equipment
$ 2,115
$ 1,932
Identifiable Intangible Assets
$ 487
$ 467
Goodwill
$ 205
$ 188
Deferred Income Taxes and other Assets
$ 894
$ 873
Total Non-current Assets
$ 3,701
$ 3,460
Total Assets
$ 14,998
$ 14,419
2011
2010
Liabilities and Shareholder's Equity
Current Liabilities
Current portion of Long-Term Debt
$ 200
$ 7
Notes Payable
$ 187
$ 139
Accounts Payable
$ 1,469
$ 1,255
Accrued Liabilities
$ 1,985
$ 1,904
Income Taxes Payable
$ 117
$ 59
Total Current Liabilities
$ 3,958
$ 3,364
Non-Current Liabilities
Long-Term Debt
$ 276
$ 446
Deferred Income Taxes and other Liabilities
$ 921
$ 855
Total Non-Current Liabilities
$ 1,197
$ 1,301
Total Liabilities
$ 5,155
$ 4,665
Shareholder's Equity:
Redeemable Preferred Stock
*
*
Common Stock at Stated Value
Class A convertible
*
*
Class B
$ 3
$ 3
Capital in Excess of Stated Value
$ 3,944
$ 3,441
Retained Earnings
$ 5,801
$ 6,095
Accumulated other Comprehensive Income
$ 95
$ 215
Total Shareholders' Equity
$ 9,843
$ 9,754
Total Liabilities and Shareholders' Equity
$ 14,998
$ 14,419
* denotes less than .5 million
Income Statement (in millions)
2011
2010
Revenues
$ 20,862
$ 19,014
Cost of Sales
$ 11,354
$ 10,214
Gross Margin
$ 9,508
$ 8,800
Demand creation Expense
$ 2,448
$ 2,356
Operating Overhead Expense
$ 4,245
$ 3,970
Total Selling and Administrative Expense
$ 6,693
$ 6,326
Income from Operations
$ 2,815
$ 2,474
Other Expenses (Income)
Interest Expense, net
$ 4
$ 6
Other Income, net
$ (33)
$ (49)
Total Other Expenses (Income)
$ (29)
$ (43)
Income before Taxes
$ 2,844
$ 2,517
Income Taxes
$ 711
$ 610
Net Income
$ 2,133
$ 1,907
Explanation / Answer
2011 2010 Debt to Equity Ratio = Total Liabilities / Shareholders Equity 0.52 0.48 Increased debt burden Current Ratio = Current Assets / Current Liabilities 2.85 3.26 its CA are decreased wrt CL Quick Ratio = (Current Assets – Inventories)/ Current Liabilities 2.17 2.65 Inventories are increased Return on Equity (ROE) = Net Income/Shareholder's Equity 0.22 0.20 ROE increased due to more debt Net Profit Margin = Net Profit / Net Sales 0.10 0.10 Profit Margin has more or less same
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