Background:

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 Companys 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 Companys 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 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 firms results of operations, financial condition and cash flows.

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 firms 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 students ability to understand what aspects of a firms 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.

Assume that you are a Senior Financial Manager for Drive It Long Golf, Inc. A 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 firms 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 companys growth rate is 9%. As Drive It Longs Senior Financial Manager, you are assumed to be able to offer an authoritative interpretation of the firms recent performance.

Financial Ratios, Drive It Long Golf, Inc.

Short-term solvency ratios:	2015	2016
a. Current ratio	1.1	1.15
b. Quick ratio	0.65	0.68
c. Cash ratio	0.43	0.42
Asset utilization ratios:	Period
d. Total asset turnover	0.88
e. Inventory turnover	8.93
f. Receivables turnover	23.09
Long-term solvency ratios:	2015	2016
g. Total debt ratio	0.37	0.38
h. Debtequity ratio	0.58	0.6
i. Equity multiplier	1.58	1.6
	Period
j. Times interest earned ratio	5.73
k. Cash coverage ratio	7.99
Profitability ratios:	Period
l. Profit margin	11.94%
m. Return on assets	10.53%
n. Return on equity	16.85%

Table 1. Financial Ratios, Drive It Long Golf, Inc.

Drive It Long, Inc.

Statement of Cash Flows for 2016
Cash, beginning of the year	$26,450
Operating activities
Net income	$50,376
Plus:
Depreciation	$37,053
Increase in accounts payable	4,883
Increase in other current liabilities	5,161
Less:
Increase in accounts receivable	($4,589)
Increase in inventory	(4,655)
Net cash from operating activities	$88,229
Investment activities
Fixed asset acquisition	($78,233)
Net cash from investment activities	($78,233)
Financing activities
Increase in notes payable	($2,340)
Dividends paid	(20,000)
Increase in long-term debt	15,000
Net cash from financing activities	($7,340)
Net increase in cash	$2,656
Cash, end of year	$29,106

Table 2. Statement of Cash Flows, Drive It Long, Inc.

Drive It Long, Inc.

2014 and 2015 Balance Sheets
		2014	2015			2014	2015
Current assets				Current Liabilities
	Cash	$26,450	$29,106		Accounts payable	$30,602	$35,485
	Accounts receivable	13,693	18,282		Notes payable	15,840	13,500
	Inventory	27,931	32,586		Other	15,280	20,441
	Total	$68,074	$79,974		Total	$61,722	$69,426
				Long-term debt		$95,000	$110,000
				Owner's equity
					Common stock & paid-in surplus	$ 45,000	$45,000
Fixed assets					Accumulated retained earnings	223,517	253,893
	Net plant & equipment	$357,165	$398,345		Total	$268,517	$298,893
Total assets		$425,239	$478,319	Total liabilities & owners equity		$425,239	$478,319

Table 3. Balance Sheets, Drive It Long Golf, Inc.

Drive It Long, Inc.

2015 Income Statement
Sales		$422,045
	Cost of Goods Sold	$291,090
	Depreciation	37,053
Earnings Before Interest and Taxes		$93,902
	Interest Paid	$16,400
	Taxable Income	77,502
	Taxes (35%)	27,126
Net Income		$50,376
	Dividends	$20,000
	Retained Earnings	30,376

Table 4. Income Statement, Drive It Long Golf, Inc.

1. Analyze the financial performance of Drive It Long Golf, Inc. using the following tools:
   1. time and trend analysis
   2. peer-group analysis
   3. two or more ratios financial ratios (introduced in Module Twos assigned readings) in each area that will allow you to evaluate the following four aspects of performance:

1. Short-term solvency
2. Asset Utilization
3. Long-term solvency
4. Profitability

2. Evaluate the firms financial position using the firms DuPont Identity, considering:
   1. operating efficiency (as measured by profit margin),
   2. asset use efficiency (as measured by total asset turnover), and
   3. financial leverage (as measured by the equity multiplier).

3. Determine PEG ratio.
   1. Construct Drive It Longs PEG ratio, and
   2. Evaluate this PEG ratio.

Your paper should be 46 pages long with a minimum of 2 references in a double-spaced document using 12 pt. Times New Roman font, utilizing APA format.