Question

PC-29A Comple ting a comprehensive financial statement analysis In its annual report, ABC Athletic Supply, Inc. includes the following five-year financial summary: Learning Objectives 2, 4 3. 2018: Inventory turnover 8.04 ABC ATHLETIC SUPPLY, INC. Five-Year Financial Summary (Partial; adapted) 2013 2014 2015 2016 2017 2018 (Dollar amounts in thousands except per share data) $161,000 134,000 $191,000 $250,000 $216,000 Net Sales Revenue 17% 20% 19% 13% 16% Net Sales Revenue Increase 7% 9% 4% 6% 5% Domestic Comparative Store Sales Increase 1,690 1,330 1,760 1,840 2,110 Other Income-Net 106,396 126,385 164,592 148,216 189,250 Cost of Goods Sold 22,540 27,440 31,620 36,330 41,210 Selling and Administrative Expenses Interest: (1,400) (1,020) (830) (1,080) (1,380) Interest Expense 155 235 190 165 125 Interest Income 2,700 3.900 3,700 3,320 4,470 Income Tax Expense 3,054 7,979 4,760 16,225 11,803 Net Income Per Share of Common Stock: 1.20 1.00 0.78 1.30 1.60 Net Income 0.38 0.34 0.30 0.26 0.40 Dividends Financial Position Current Assets, Excluding Merchandise Inventory Merchandise Inventory $ 21,500 $26,700 $ 30,700 $27,200 $ 24,400 $16,700 17,500 21,700 19,000 24,500 22,600 45,200 25,600 40,000 35,100 Property, Plant, and Equipment, Net 51,400 78,500 64,600 Total Assets 106,600 95,000 88,400 16,500 28,300 28,000 25,000 Current Liabilities 32,300 12,000 Long-term Debt Stockholders' Equity 21,500 17,600 19,100 23,000 36,100 42,500 34,400 51,300 45,500 Financial Ratios Acid-Test Ratio 1.3 1.0 0.9 1.0 1.0 Rate of Return on Total Assets 8.1% 7.1% 14.4% 11.2% 17.2% Rate of Return on Common Stockholders' Equity 13.0% 20.8% 13.5% 33.5% 26.8% O XIaN3dd V Financ Requirements Analyze the company's financial summary for the fiscal years 2014-2018 to decide whether to invest in the common stock of ABC. Include the following sections in your analysis. 1. Trend analysis for net sales revenue and net income (use 2014 as the base year). 2. Profitability analysis. 3. Evaluation of the ability to sell merchandise inventory 4. Evaluation of the ability pay debts. to 5. Evaluation of dividends. 6. Should you invest in the common stock of ABC Athletic Supply, Inc.? Fully explain your final decision

Answer 1

Financial Analysis Of ABC Atheletic Supply

1. Trend Analysis for Net Sales revenue & Net Income--> there is a Increasing trend in both Net Sales Revenue & Net Income though percentage of increasing trend is varying from year to year ( a Screent shot is attached with it to show the trend of that both are increasing)
   NET SALES REVENUE 300000 Net Sales Revenue Net Income Year 200000 134000 3054 2014 161000 4760 2015 100000 191000 7979 2016 11803 2017 216000 250000 16225 2018 2016 2017 2018 2014 2015 20000 Trend Analysis NET INCOME 16225 15000 300000 10000 250000 216000 200000 191000 5000 161000 134000 100000 2018. 2014 2015 2016 2017 16225 3054 7979 11803. 4760 2014 2015 2016 2018 2017 Chart Area ales Revenue Net Income
   
2. Profitabilty Analysis--> if we consider the margins in profit is incresed tremendously compared to 2014 in 2018 moreover rate of return on Assets is also increasing there is increase in overall profitablity of the concerned
3. Ablity of the Concern to Sell Merchandise Inventory--> it can be calutate by formula COGS/ Average Inventory. it indicates us that Firms Ablity to sell inventory is enhanced during the relevant period (excel screenshot is enclosed)
   COGS year Inventory Avg Invt ITR CCC 2013 16700 where 2014 106396 17100 6.221988 1.928644 17500 ITR-Inventory Turover ration 18250 6.925205 1.732801 2015 126385 CCC= Cash Conversion Cycle 19000 2016 148216 20350 7.283342 1.647595 21700 COGS= Cost of Good Sold 2017 164592 22600 22150 7.43079 1.614902 Avg Invt- Average Inventory 2018 189250 24500 23550 8.036093 1.493263 Formulas used in Calculations 1 Avg Invt (Opening inventory + Closing inventory)/2 2 ITR COGS/Avg Invt 3 CCC= 12/ITR
   
4. evalution on Ablity to Pay Debt--> Concern is becoming more & more powerful to its debt over the year (PFA to see the treant in Paying of Debt as well as Interest Coverage
   H year Net Income Interest Debt Amount Interest +Debt Net Income +Interest DSCR ICR 2014 3054 830 12000 12830 3884 0.302728 4.679518 5780 0.287276 5.666667 2015 4760 1020 19100 20120 2016 7979 1400 17600 19000 9379 0.493632 6.699286 2017 11803 1380 21500 22880 0.57618 9.552899 13183 2018 16225 1080 23000 24080 17305 0.718646 16.02315 Where ICR Interest Coverage Ratio> (Earning for Debt/(Int+Debt) DSCR Debt Service Coverage Ratio=> Earning for Debt/Interest Earning for Debt > net Income +Interest
   
5. Evaluation on Dividend--> there is constantly increasing trend in rate of return on common stock. as the profit is increasing return on divident is also increaing it was only 13% in 2014 & in 33.5% in Year 2018. hence we are earning more money every year
6. Evaluation on Common Stock of the Company--> there is increasing trend in Rate of return on Common stock which reduces the risk of investment and also indicates that possibly in the comming few year we will be able to earn more and handsomely on our investment in Common stock of the Concern. Hence it recommended to invest in ABC Athletic Supply