Paper Financial Statements as a Key Source of Information for Financial Decisions<\/p>\n
This assignment addresses the following Module Outcomes:<\/p>\n
Assess a firm’s solvency, asset management and profitability using common financial ratios. (CO1)<\/p>\n
Evaluate the financial position of the firm using time and trend or peer-group analysis. (CO1, CO2)<\/p>\n
Instructions:<\/p>\n
Your paper should be 4 to 6 pages in length (not including title and reference pages).<\/p>\n
Your paper should be double-spaced, with 1-inch margins, in-text citations and references for all sources following proper\u00a0APA\u00a0formatting.<\/p>\n
Use the\u00a0EC\u00a0Library resources to properly cite your work:<\/p>\n
APA Format Tip Sheet\u00a0(Links to an external site.)<\/p>\n
Citing Sources\u00a0(Links to an external site.)<\/p>\n
Plagiarism & Copyright\u00a0(Links to an external site.)<\/p>\n
Use the EC Library guide to conduct your research:<\/p>\n
Business Research Guide\u00a0(Links to an external site.)<\/p>\n
Background:<\/p>\n
Callaway Golf Company was incorporated in 1982 with the purpose of designing, manufacturing and selling high quality golf clubs. The Company became a publicly traded corporation in 1992. Callaway Golf has evolved over time from a manufacturer of golf clubs to one of the leading manufacturers and distributors of golf equipment and accessories.Callaway designs its products to be technologically advanced and invests substantially in research and development each year. The Company\u2019s golf products are designed for golfers of all skill levels including amateur and professional golfers. Callaway Golf generally sells its products to retailers, directly and through its wholly-owned subsidiaries, and to third-party distributors. It also licenses its trademarks and service marks in exchange for a royalty fee to third parties for use on golf related accessories, including golf apparel and footwear, golf gloves, prescription eyewear and practice aids. The Company\u2019s products are sold in the United States and in over 100 countries around the world. For purposes of this assignment, assume that you focus is Drive It Long, which is a close competitor to Callaway Golf. Drive It Long similarly sells golf clubs, golf balls and golf accessories. These products are recreational in nature and are therefore discretionary purchases for consumers. Both firms are affected by the fact that consumers are generally more willing to make discretionary purchases of golf products during favorable economic conditions and when consumers are feeling confident and prosperous. Discretionary spending is also affected by factors including general business conditions, interest rates, consumer confidence in future economic conditions, and the availability of consumer credit. Purchases of these firms\u2019 products may decline during periods when disposable income is lower, or during periods of actual or perceived unfavorable economic conditions. A significant or prolonged decline in general economic conditions or uncertainties regarding future economic prospects that adversely affect consumer discretionary spending would have a negative impact on these firm\u2019s results of operations, financial condition and cash flows.<\/p>\n
This paper is an exercise designed to better acquaint students with the four main categories of ratio analysis. Financial ratios are a standardized means of comparing information presented in financial statements, in order to analyze the operations of a firm, and to compare operations against certain benchmarks that assist us in drawing conclusions about the firm\u2019s performance. This exercise requires students to compute common financial ratios in the four areas in which these are most often applied to analyze firm performance. This will strengthen the student\u2019s ability to understand what aspects of a firm\u2019s activities that a particular ratio characterizes, and where this information can be found in financial statements. The student will additionally be asked to draw conclusions regarding financial performance using computed ratios.<\/p>\n
Assume that you are a Senior Financial Manager for Drive It Long Golf,\u00a0Inc.\u00a0A close competitor is Callaway Golf Co. (ELY). You are preparing to address the Board of Directors regarding the current financial picture of the firm, following the release of the firm\u2019s Audited Financial Statements. Drive It Long Golf, Inc. has 25,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2016 was $58. Assume that this company\u2019s growth rate is 9%. As Drive It Long\u2019s Senior Financial Manager, you are assumed to be able to offer an authoritative interpretation of the firm\u2019s recent performance.<\/p>\n
Financial Ratios, Drive It Long Golf, Inc.<\/p>\n
Short-term solvency ratios:<\/p>\n
2015<\/p>\n
2016<\/p>\n
a. Current ratio<\/p>\n
1.1<\/p>\n
1.15<\/p>\n
b. Quick ratio<\/p>\n
0.65<\/p>\n
0.68<\/p>\n
c. Cash ratio<\/p>\n
0.43<\/p>\n
0.42<\/p>\n
Asset utilization ratios:<\/p>\n
Period<\/p>\n
d. Total asset turnover<\/p>\n
0.88<\/p>\n
e. Inventory turnover<\/p>\n
8.93<\/p>\n
f. Receivables turnover<\/p>\n
23.09<\/p>\n
Long-term solvency ratios:<\/p>\n
2015<\/p>\n
2016<\/p>\n
g. Total\u00a0debt\u00a0ratio<\/p>\n
0.37<\/p>\n
0.38<\/p>\n
h. Debt\u2013equity ratio<\/p>\n
0.58<\/p>\n
0.6<\/p>\n
i. Equity multiplier<\/p>\n
1.58<\/p>\n
1.6<\/p>\n
Period<\/p>\n
j. Times interest earned ratio<\/p>\n
5.73<\/p>\n
k. Cash coverage ratio<\/p>\n
7.99<\/p>\n
Profitability ratios:<\/p>\n
Period<\/p>\n
l. Profit margin<\/p>\n
11.94%<\/p>\n
m. Return on assets<\/p>\n
10.53%<\/p>\n
n. Return on equity<\/p>\n
16.85%<\/p>\n
Table 1.\u00a0Financial Ratios, Drive It Long Golf, Inc.<\/p>\n
Drive It Long, Inc.<\/p>\n
Statement of Cash Flows for 2016<\/p>\n
Cash, beginning of the year<\/p>\n
$26,450<\/p>\n
Operating activities<\/p>\n
Net income<\/p>\n
$50,376<\/p>\n
Plus:<\/p>\n
Depreciation<\/p>\n
$37,053<\/p>\n
Increase in accounts payable<\/p>\n
4,883<\/p>\n
Increase in other current liabilities<\/p>\n
5,161<\/p>\n
Less:<\/p>\n
Increase in accounts receivable<\/p>\n
($4,589)<\/p>\n
Increase in inventory<\/p>\n
(4,655)<\/p>\n
Net cash from operating activities<\/p>\n
$88,229<\/p>\n
Investment activities<\/p>\n
Fixed asset acquisition<\/p>\n
($78,233)<\/p>\n
Net cash from investment activities<\/p>\n
($78,233)<\/p>\n
Financing activities<\/p>\n
Increase in notes payable<\/p>\n
($2,340)<\/p>\n
Dividends paid<\/p>\n
(20,000)<\/p>\n
Increase in long-term debt<\/p>\n
15,000<\/p>\n
Net cash from financing activities<\/p>\n
($7,340)<\/p>\n
Net increase in cash<\/p>\n
$2,656<\/p>\n
Cash, end of year<\/p>\n
$29,106<\/p>\n
Table 2.\u00a0Statement of Cash Flows, Drive It Long, Inc.<\/p>\n
Drive It Long, Inc.<\/p>\n
2014 and 2015 Balance Sheets<\/p>\n
2014<\/p>\n
2015<\/p>\n
2014<\/p>\n
2015<\/p>\n
Current assets<\/p>\n
Current Liabilities<\/p>\n
Cash<\/p>\n
$26,450<\/p>\n
$29,106<\/p>\n
Accounts payable<\/p>\n
$30,602<\/p>\n
$35,485<\/p>\n
Accounts receivable<\/p>\n
13,693<\/p>\n
18,282<\/p>\n
Notes payable<\/p>\n
15,840<\/p>\n
13,500<\/p>\n
Inventory<\/p>\n
27,931<\/p>\n
32,586<\/p>\n
Other<\/p>\n
15,280<\/p>\n
20,441<\/p>\n
Total<\/p>\n
$68,074<\/p>\n
$79,974<\/p>\n
Total<\/p>\n
$61,722<\/p>\n
$69,426<\/p>\n
Long-term debt<\/p>\n
$95,000<\/p>\n
$110,000<\/p>\n
Owner’s equity<\/p>\n
Common stock & paid-in surplus<\/p>\n
$45,000<\/p>\n
$45,000<\/p>\n
Fixed assets<\/p>\n
Accumulated retained earnings<\/p>\n
223,517<\/p>\n
253,893<\/p>\n
Net plant & equipment<\/p>\n
$357,165<\/p>\n
$398,345<\/p>\n
Total<\/p>\n
$268,517<\/p>\n
$298,893<\/p>\n
Total assets<\/p>\n
$425,239<\/p>\n
$478,319<\/p>\n
Total liabilities & owners\u2019 equity<\/p>\n
$425,239<\/p>\n
$478,319<\/p>\n
Table 3.\u00a0Balance Sheets, Drive It Long Golf, Inc.<\/p>\n
Drive It Long, Inc.<\/p>\n
2015 Income Statement<\/p>\n
Sales<\/p>\n
$422,045<\/p>\n
Cost of Goods Sold<\/p>\n
$291,090<\/p>\n
Depreciation<\/p>\n
37,053<\/p>\n
Earnings Before Interest and Taxes<\/p>\n
$93,902<\/p>\n
Interest Paid<\/p>\n
$16,400<\/p>\n
Taxable Income<\/p>\n
77,502<\/p>\n
Taxes (35%)<\/p>\n
27,126<\/p>\n
Net Income<\/p>\n
$50,376<\/p>\n
Dividends<\/p>\n
$20,000<\/p>\n
Retained Earnings<\/p>\n
30,376<\/p>\n
Table 4.\u00a0Income Statement, Drive It Long Golf, Inc.<\/p>\n
Analyze the financial performance of Drive It Long Golf, Inc. using the following tools:<\/p>\n
time and trend analysis<\/p>\n
peer-group analysis<\/p>\n
two or more ratios financial ratios (introduced in Module Two\u2019s assigned readings) in each area that will allow you to evaluate the following four aspects of performance:<\/p>\n
Short-term solvency<\/p>\n
Asset Utilization<\/p>\n
Long-term solvency<\/p>\n
Profitability<\/p>\n
Evaluate the firm\u2019s financial position using the firm\u2019s DuPont Identity, considering:<\/p>\n
operating efficiency (as measured by profit margin),<\/p>\n
asset use efficiency (as measured by total asset turnover), and<\/p>\n
financial leverage (as measured by the equity multiplier).<\/p>\n
Determine PEG ratio.<\/p>\n
Construct Drive It Long\u2019s PEG ratio, and<\/p>\n
Evaluate this PEG ratio.<\/p>\n
Your paper should be 4\u20136 pages long with a minimum of 2 references in a double-spaced document using 12\u00a0pt.\u00a0Times New Roman font, utilizing APA format.<\/p>\n
\u00a0<\/p>\n
References<\/p>\n
Callaway Golf. (2016).\u00a0Annual Report.<\/p>\n
\u00a0(Links to an external site.)<\/p>\n
Callaway Golf. (n.d.).\u00a0Callaway Golf.<\/p>\n
\u00a0(Links to an external site.)<\/p>\n
\u00a0\u00a0\u00a0<\/p>\n
NASDAQ. (2016).\u00a0Company List (NASDAQ, NYSE, & AMEX).<\/p>\n
\u00a0(Links to an external site.)<\/p>\n
Valuepro. (2016).\u00a0Valuepro.<\/p>\n
\u00a0(Links to an external site.)<\/p>\n
Yahoo. (2009).\u00a0Key Statistics \u2013 Yahoo.com.<\/p>\n
\u00a0(Links to an external site.)<\/p>\n
Compose your work in a .doc or .docx file type using a word processor (such as Microsoft Word,\u00a0etc.) and save it frequently to your computer. For those assignments that are not written essays and require uploading images or PowerPoint slides, please follow uploading guidelines provided by your instructor.<\/p>\n
Check your work and correct any spelling or grammatical errors. When you are ready to submit your work, click \u201cUpload Submission.\u201d\u00a0 Enter the submission title and then click on \u201cSelect a file to upload.\u201d Browse your computer, and select your file. Click \u201cOpen\u201d and verify the correct file name has appeared next to Submission File. Click on \u201cContinue.\u201d\u00a0 Confirm submission is correct and then click on \u201cAccept Submission & Save.\u201d<\/p>\n
Turnitin\u00ae<\/p>\n
This course has Turnitin\u00ae fully integrated into the course dropbox. This means that you should\u00a0only submit your assignments to the dropbox below.\u00a0Please do not submit your assignment directly to Turnitin.com.\u00a0<\/p>\n
Once submitted, your assignment will be evaluated by Turnitin\u00ae automatically. You will be able to view an Originality Report within minutes of your first submission that will show how much of your work has been identified as similar to other sources such as websites, textbooks, or other student papers. Use your Originality Report as a learning tool to identify areas of your assignment that you may not have cited appropriately.\u00a0You may resubmit your assignment through this dropbox as many times as you need to check to see if you have made improvements, until the due date of the assignment.\u00a0However, once you have made your first submission, you will need to wait 24 hours after each subsequent submission to receive a new Originality Report. Plan accordingly as you draft your assignment. Once the due date has passed, your assignment submission will be considered final.<\/p>\n
Evaluation<\/p>\n
This assignment will be graded using the located on the Course Rubrics page within the Start Here section of the course. Please review the rubric prior to beginning your work so that you ensure your submission meets the criteria in place for this assignment.\u00a0This assignment is worth 15% of your final course grade.<\/p>\n","protected":false},"excerpt":{"rendered":"
Paper Financial Statements as a Key Source of Information for Financial Decisions This assignment addresses the following Module Outcomes: Assess a firm’s solvency, asset management and profitability using common financial ratios. (CO1) Evaluate the financial position of the firm using time and trend or peer-group analysis. (CO1, CO2) Instructions: Your paper should be 4 to […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[10],"class_list":["post-93780","post","type-post","status-publish","format-standard","hentry","category-research-paper-writing","tag-writing"],"_links":{"self":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts\/93780","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/comments?post=93780"}],"version-history":[{"count":0,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts\/93780\/revisions"}],"wp:attachment":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/media?parent=93780"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/categories?post=93780"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/tags?post=93780"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}