Business Analysis; Spreadsheet Application Davidson Yachts is a small company fo
ID: 2601780 • Letter: B
Question
Business Analysis; Spreadsheet Application Davidson Yachts is a small company founded by two businesspeople who are friends and avid sailors. At present, they are interested in expanding the business and have asked you to review its financial statements.
Davidson Yachts sells approximately 100 to 150 sailboats each year, ranging from 14-foot dinghies to 20-foot sailboats. Their sales prices range from $2,000 to more than $10,000. The company has a limited inventory of boats consisting primarily of one or two boats from each of the four manufacturers that supply Davidson. The company also sells a variety of supplies and parts and performs different types of service. Most sales are on credit.
The company operates from a large building that has offices, storage, and sales for some of the smaller sailboats. The larger sailboats are kept in a fenced area adjacent to the main building, and an ample parking area is nearby. This year Davidson purchased a boat lift to haul boats. The lift has brought in revenues for boat repairs, hull painting, and related services, as well as the boat hauls.
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The balance sheet and income statement for Davidson Yachts for 2011–2016 follow. The increase in net fixed assets in the recent two years is due to improvements in the building, paving of the parking area, and the purchase of the lift.
The company obtains its debt financing from two sources: a small savings and loan for its short-term funds, and a larger commercial bank, also for short-term loans, but principally for long-term financing. The terms of the loan agreement with the bank include a restriction that its current ratio must remain higher than 1.5.
Required
Evaluate the liquidity and profitability of Davidson Yachts using selected financial ratios. Assess the company’s overall profitability, liquidity, and desirability as an investment. Use a spreadsheet to improve the speed and accuracy of your analysis.
DAVIDSON YACHTS COMPANY Comparative Statement of Income and Operating Cash Flow For the Years Ended December 31 2012 2011 2013 2014 2015 Sales Returns and allowances Cost of sales Gross margin Depreciation expense Interest expense Salaries and wages Accounting and legal Administration expense Other expense $767,580 $724,878 $777,480 $929,478 $764,610 $948,857 38,379 35,645 40,334 45,998 32,887 47.380 473,908 441,298 458,015 545,778 453,669 530,597 $255,293 $247,935 $279,131 $337,702 $278,054 $370,880 S 29,075 27,458 29,450 35,207 29,128 $ 40,080 18,597 19,557 20,998 21,475 24,889 28,993 81,923 73,664 77846 95,764 92,903 101,447 9,323 1,834 3,10 1380 79,666 75,234 80,693 96,469 87,995 97.441 12,630 18,927 15,763 22,903 18,934 22,662 $231,195 $223,626 $234,073 S283,652 $266,957 S302,003 S 24,098 S 24,309 $ 45,058 S 54,050 $ 11,097 $ 68,877 9,304 8,786 Total expense Net income Cash flow from operations (adjustments to net income) Depreciation Decrease (increase) in receivables Decrease (increase) in inventory Decrease (increase) in other current assets Increase (decrease) in current liabilities S 27,458 29,450 S35,207 29,128 S 40,080 (3,887) 10,031) 10,318) 7,291 34 397) (21,775 5,008 6,092) 8,890 37,780)Explanation / Answer
EVALUATION OF LIQUIDITY Current Ratio=(Current assets)/(Current Liabilities) 2011 2012 2013 2014 2015 2016 A Current assets $160,324 $185,692 $193,630 $221,713 $218,715 $282,444 B Current Liabilities $159,368 $150,688 $116,358 $115,656 $98,295 $148,917 C=A/B Current ratio 1.005999 1.232295 1.664088 1.917004 2.225088 1.896654 Quick ratio=(Quick Assets)/(Current Liabilities) Quick assets=Cash+ Marketable securities+ Accounts receivable Marketable securities=0 2011 2012 2013 2014 2015 2016 A Cash $23,260 $21,966 $18,735 $28,426 $43,692 $31,264 B Accounts receivable $99,465 $102,834 $112,903 $125,663 $104,388 $144,009 C=A+B Quick Assets $122,725 $124,800 $131,638 $154,089 $148,080 $175,273 D Current Liablities $159,368 $150,688 $116,358 $115,656 $98,295 $148,917 E=C/D Quick Ratio 0.770073 0.828201 1.131319 1.332304 1.506486 1.176984 Current ratio has improved after 2012 and is over 1.5 in every year after 2012 Quick ratio is above 1 after 2012 The company has adequate liquidity to meet its financial obligations EVALUATION OF PROFITABILITY Return on total asset= Net income/Total assets 2011 2012 2013 2014 2015 2016 A Net Income $24,098 $24,309 $45,058 $54,050 $11,097 $68,877 B Total assets $356,535 $374,258 $370,118 $432,179 $436,757 $553,763 C=A/B Return on total assets 0.067589 0.064953 0.12174 0.125064 0.025408 0.12438 Return on stockholders equity=Net Income/Stockholders equity 2011 2012 2013 2014 2015 2016 A Net Income $24,098 $24,309 $45,058 $54,050 $11,097 $68,877 B Shareholders equity $38,994 $51,182 $74,270 $101,526 $108,991 $142,588 C=A/B Return on Equity 0.617993 0.474952 0.606678 0.532376 0.101816 0.483049 Return on total assets was 6.76% in 2011 and improved to 12.4% in 2016 In 2015 the return on total asset was low at 2.5% Return on equity was high between 61.8% in 2011 and 48.3% in 2016 In 2015 , the return on equity was low at 10.2% Considering liquidity and profitability, one can invest in the company
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