Conduct a SWOT analysis (Strengths Weaknesses Opportunities Threats) for C&C Sports based on the materials provided.

The family has made a conscious decision not to follow the textile industry's trend of transferring manufacturing operations to China and other foreign countries that offer cheap labor. They have chosen to remain a domestic producer and to focus instead on quick delivery and fast customer response within a local marketthe state of Texas. The company manufactures three products: baseball jerseys, baseball pants, and letter award jackets. Exhibit T1.2 illustrates C&C Sports' supply chain. Notice that it begins with Paladin Polymers, Inc., which makes polyester pellets. Neff Fiber Manufacturing melts the polyester pellets and pushes them through an extruder to create the raw fiber, called partially oriented yarn. Centex Yarns converts the raw fiber into finished yarn by covering, twisting, texturizing, and coloring it. Bradley Textile Mills then uses the finished yarn to weave the fabric that C&C Sports buys. C&C Sports manufactures the uniforms and sells them to retailers such as Universal Sports Exchange, which resell them to the end customer.

The supply chain of C and C Sports is illustrated in a sequential diagram. The diagram begins with the Polymer Producer, Paladin Polymers, Incorporated. It is followed by the Raw Fiber producer, Neff Fiber Manufacturing; the Yarn producer, Centex Yarns; the Fabric producer, Bradley Textile Mills; the Apparel manufacturer, C and C Sports; the Retailer, Universal Sports Exchange; and the end customer.

EXHIBIT T1.2 C&C Sports' supply chain.

While Exhibit T1.2 shows the major links in the supply chain, a number of other firms play a role as well. For instance, transportation companies provide shipping services between C&C Sports and Universal Sports Exchange. And providers of other items, such as buttons and thread, supply C&C's need for production materials.

A Brief Look at C&C's Resources If C&C is to remain successful, it must generate sufficient resources to continue operating. To date, the company has enjoyed moderate financial success. Its latest financial statements are presented in Exhibits T1.3, T1.4, and T1.5.

A screenshot of an Excel worksheet presents comparative income statements. It begins with a three-line heading consisting of the name of the company, C and C Sports, the type of statement, income statements, and the period for which statements are prepared, For the Years ended December 31, 2018 through 2020. The statement is divided into four columns. The account names and their respective amounts for each year are: Sales, in 2020, $7,855,000; in 2019, $7,015, 000; and in 2018, $7,065,000. Cost of goods sold, in 2020, 5,817,590; in 2019, 5,215,000; and in 2018, 5,304,600. Gross profit, in 2020, 2,037,410; in 2019, 1,800,000; and in 2018, 1,760,400. Selling and administrative expenses, in 2020, 1,735,539; in 2019, 1,570,689; and in 2018, 1,555,778. Operating income, in 2020, 301,871; in 2019, 229,311; and in 2018, 204,622. Interest expense, in 2020, 41,711; in 2019, 43,210; and in 2018, 45,698. Income before taxes, in 2020, 260,160; in 2019, 186,101; and in 2018, 158,924. Tax expense at 30%, in 2020, 78,048; in 2019, 55,830; and in 2018, 47,677. Net income, in 2020, $182,112; in 2019, $130,271; and in 2018, $111,247.

EXHIBIT T1.3 C&C Sports' income statement.

An screenshot of and Excel worksheet presents comparative balance sheets. It begins with a three-line heading consisting of the name of the company, C and C Sports, the type of statement, Balance sheets, and the statement date, As of December 31, 2020 and 2019. At December 31, 2020, the account names and line item labels, and their respective amounts in the assets section include: Cash, $7,752; Accounts receivable net, 578,639; Raw materials, $682,000; Work in process, 14,660; Finished goods, 227,270; Total inventories, 923,930; Prepaid expenses, 24,388; Total current assets, 1,534,709; Machinery and equipment net, 365,335; Other assets, 29,937; and Total assets, $1,929,981. At December 31, 2020, the account names and line item labels, and their respective amounts in the liabilities and stockholders' equity section include: Accounts payable, $441,602; Accrued liabilities, 84,642; Short-term debt, 125,000; Current maturities of long-term debt, 40,000; Total current liabilities, 691,244; Long-term debt, 410,000; Total liabilities, 1,101,244; Common stock, 250,000; Retained earnings, 578,737; Total stockholders' equity, 828,737; and Total liabilities and stockholders' equity, $1,929,981. At December 31, 2019, the account names and line item labels, and their respective amounts in the assets section include: Cash, $36,773; Accounts receivable net, 540,462; Raw materials, $566,000; Work in process, 14,630; Finished goods, 211,512; Total inventories, 792,142; Prepaid expenses, 8,165; Total current assets, 1,377,542; Machinery and equipment net, 491,607; Other assets, 33,707; and Total assets, $1,902,856. At December 31, 2020, the account names and line item labels, and their respective amounts in the liabilities and stockholders' equity section include: Accounts payable, $487,912; Accrued liabilities, 168,319; Short-term debt, 110,000; Current maturities of long-term debt, 40,000; Total current liabilities, 806,231; Long-term debt, 450,000; Total liabilities, 1,256,231; Common stock, 250,000; Retained earnings, 396,625; Total stockholders' equity, 646,625; and Total liabilities and stockholders' equity, $1,902,856.

EXHIBIT T1.4 C&C Sports' balance sheets.

An screenshot of and Excel worksheet presenting comparative statements of cash flows is displayed. It begins with a three-line heading consisting of the name of the company, C and C Sports, the type of statements, Statements of Cash Flows, and the period for which statements are prepared, for the Years Ended December 31, 2020, 2019, and 2018. In the cash flows from operating activities section, the section labels, account names and line item labels, and the respective amounts for the year ending December 31, 2020 are: Net income, $182,112; Adjustments to reconcile net income to cash provided by operating activities section: Depreciation, 126,272; Changes in operating assets and liabilities section: Accounts receivable, negative 38,177; Inventories, negative 131,788; Prepaid expenses or other assets, negative 12,453; Accounts payable, negative 46,310; Accrued liabilities, negative 83,677; and Net cash used by operating activities, negative $4,021. Net cash provided by investing activities is zero in 2020. In the cash flows from financing activities section, the section labels, account names and line item labels, and the respective amounts for the year ending December 31, 2020 are: Short-term borrowing, 15,000; Repayment of long-term debt, negative 40,000; and Net cash used by financing activities, negative 25,000. The total section shows: Increase or Decrease in cash, negative 29,021; Cash at beginning of period, 36,773; and Cash at end of period, $7,752. In the cash flows from operating activities section, the section labels, account names and line item labels, and the respective amounts for the year ending December 31, 2019 are: Net income, $130,271; Adjustments to reconcile net income to cash provided by operating activities section: Depreciation, 120,163; Changes in operating assets and liabilities section: Accounts receivable, negative 31,466; Inventories, negative 98,510; Prepaid expenses or other assets, negative 14,507; Accounts payable, negative 28,438; Accrued liabilities, negative 55,267; and Net cash provided by operating activities, 22,246. Net cash provided by investing activities is zero in 2019. In the cash flows from financing activities section, the section labels, account names and line item labels, and the respective amounts for the year ending December 31, 2019 are: Repayment of long-term debt, negative 40,000; and Net cash used by financing activities, negative 40,000. The total section shows: Increase or Decrease in cash, negative 17,754; Cash at beginning of period, 54,527; and Cash at end of period, $36,773. In the cash flows from operating activities section, the section labels, account names and line item labels, and the respective amounts for the year ending December 31, 2018 are: Net income, $111,247; Adjustments to reconcile net income to cash provided by operating activities section: Depreciation, 124,731; Changes in operating assets and liabilities section: Accounts receivable, negative 38,663; Inventories, negative 105,411; Prepaid expenses or other assets, negative 22,116; Accounts payable, 8,197; Accrued liabilities, negative 38,575; and Net cash used by operating activities, $39,410. Net cash provided by investing activities is zero in 2018. In the cash flows from financing activities section, the section labels, account names and line item labels, and the respective amounts for the year ending December 31, 2018 are: Repayment of long-term debt, negative 40,000; and Net cash used by financing activities, negative 40,000. In the totals section, Increase or Decrease in cash, negative 590; Cash at beginning of period, 55,117; and Cash at end of period, $54,527.

EXHIBIT T1.5 C&C Sports' statement of cash flows.

Although details of conducting an analysis of C&C's financial statements are presented in Chapter 12, a brief look at some important trends and indicators will help you understand the company's resource position. The availability of resources such as cash and inventory will determine how C&C is able to respond to changes in the business environment to take advantage of opportunities that arise. Let's first take a look at the Statement of Cash Flows (see page TF1-5) because the ability to generate cash can make or break a small business. The first section of the statement shows that over the last three years, C&C has seen a decline in cash from operations. In fact, in 2020, cash from operations was negative. Income has been increasing, but accounts receivable and inventories have been increasing, too. In fact, the changes in all of the working capital accounts (current assets and current liabilities) have created a drain on cash. C&C doesn't have any investing activities, which is not unusual for a small business. The other source of cash flow is financing activities, and you can see that each year, C&C has paid off more debt than it has borrowed. It appears that C&C may be trading long-term debt for short-term debt, as evidenced by the repaying of long-term debt and the increase in short-term debt. This is a good strategy only if the terms of the short-term debt are better than what the company can currently get on long-term debt. Since cash from operations and cash from financing activities are decreasing, the cash balance is decreasing. This trend can't continue into the future, so management needs to find a way to increase cash, preferably from operating activities. Now let's consider some key relationships on the income statement (Exhibit T1.3, p. TF1-3). You can see that sales decreased from 2018 to 2019 and increased from 2019 to 2020, yet net income increased every year. C&C was able to generate increasing income, even when sales declined, because expenses as a percentage of sales were reduced. The following table shows various income statement accounts as a percentage of sales. Cost of goods sold as a percentage of sales decreased each year, resulting in a higher gross profit percentage. Selling and administrative expense increased as a percentage of sales from 2018 to 2019 and decreased from 2019 to 2020. The operating income percentage is low when compared to other apparel manufacturers. IBISWorld, a company that provides market analyses by industry, estimates that companies in this industry have an average 4.7% profit margin, as shown in Exhibit T1.6.1 In the industry, smaller firms tend to lack economies of scale in production, have a higher cost of capital, and have higher administrative costs than larger firms. This is true of C&C Sports and is the primary reason that C&C's costs runs higher as a percentage of sales than that of other apparel manufacturers.

A pie diagram illustrates the average cost structure for costume and team uniform manufacturing in the United States in 2018. The data in the diagram are: Rent and utilities, 2.4%; Profit, 4.7%; Wages, 23.4%; Other, 26.5%; and Purchases, 43.0%.

EXHIBIT T1.6 Average cost structure for costume and team uniform manufacturing in the United States, 2018.

Analyzing the composition of the balance sheet will help you understand the funding sources of assets and what kinds of assets C&C holds. The table below shows selected balance sheet accounts as a percentage of total assets. First look at the liabilities and stockholders' equity section. Notice that in 2019, stockholders' equity funded about 34% of assets, and liabilities funded the other 66%. By 2020, stockholders' equity funded 43% and liabilities funded the remaining 57%. C&C Sports is decreasing its reliance on debt as a source of funding assets.

December 31, 2020 December 31, 2019 December 31, 2018

Sales 100.00% 100.00% 100.00%

Cost of goods sold 74.06% 74.34% 75.08%

Gross profit 25.94% 25.66% 24.92%

Selling & administrative expense 22.09% 22.39% 22.02%

Operating income 3.84% 3.27% 2.90%

Net income 2.32% 1.86% 1.57%

Notice that most of C&C's assets are current assets and that the relative percentage increased from 2019 to 2020. Accounts receivable represents sales not yet collected and is much higher than that of other apparel manufacturers. For example, in 2017 Under Armour, Inc. had accounts receivable that were approximately 15.2% of total assets. C&C's inventory balance increased not only in absolute size (dollars) but also in relative size. This increase could indicate that C&C is experiencing a buildup in inventory that could be caused by overproduction or obsolete inventory. Or it could indicate that the company is building up an inventory buffer in anticipation of sales growth. C&C's inventory as a percentage of assets is not out of line with others in the industry.

December 31, 2020 December 31, 2019

Accounts receivable, net 29.98% 28.40%

Total inventories 47.87% 41.63%

Total current assets 79.52% 72.39%

Machinery and equipment, net 18.93% 25.84%

Total assets 100.00% 100.00%

Total current liabilities 35.82% 42.37%

Long-term debt 21.24% 23.65%

Total stockholders' equity 42.94% 33.98%

Total liabilities and stockholders' equity 100.00% 100.00%

Industry Statistics Numerous sources, ranging from government agencies to industry trade associations, provide industry statistics that help managers assess the future of the industry. To help them determine the size of the baseball uniform industry, C&C managers start by looking at the U.S. Census Bureau's Annual Survey of Manufactures. Since this survey does not show baseball uniforms as a separate category, the managers must look at the market for men's and boys' team sports uniforms as a whole. As shown in Exhibit T1.7, shipments of these uniforms have been somewhat cyclicalincreasing to 2003 and then falling to 2006, increasing to 2008 and then falling to 2011, and finally increasing to 2016. The decrease in shipments in 2009 was particularly dramatic, possibly a result of the general declining economic conditions in the United States and the resulting lower consumer disposable incomes.

A vertical bar graph illustrates the value of shipments of U.S. men's and boys' team sports uniforms. The horizontal axis represents years that range from 2000 to 2016, in increments of 1 year. The vertical axis represents millions of dollars and ranges from 0 to $300 million, in increments of $50 million. The graphed data begin at about $180 million in 2000, and rises to a peak in 2003 of about $255 million. A decline occurs through 2006 with a slight increase in 2008 to about $190 million. A steep decline follows through 2011 to about $85 million, then a steady increase through 2016, ending at $130 million.

EXHIBIT T1.7 Value of U.S. men's and boys' team sports uniform shipments. Sources: U.S. Census Bureau, Annual Survey of Manufactures Value of Product Shipments: 2001; U.S. Census Bureau, Annual Survey of Manufactures Value of Product Shipments: 2004; U.S. Census Bureau, Annual Survey of Manufactures Value of Product Shipments: 2006; U.S. Census Bureau, Annual Survey of Manufactures Value of Product Shipments: 2008; U.S. Census Bureau, Annual Survey of Manufactures Value of Product Shipments: 2010; U.S. Census Bureau, Annual Survey of Manufactures Value of Shipments: 2011; U.S. Census Bureau, Annual Survey of Manufactures Value of Shipments: 2014; U.S. Census Bureau, Annual Survey of Manufactures Value of Shipments: 2016.

IBISWorld, a leading provider of industry research and analysis reports, estimates that team sports uniforms account for 22.6% of the $1.2 billion costume and team uniform manufacturing industry (NAICS 31529). The market for team uniforms has been steady for the past five years, and there is little projected growth in the coming years. IBISWorld reports that manufacturers of these uniforms have largely moved manufacturing from the United States to countries that offer lower wage rates. Imports satisfied 69.5% of total U.S. demand in 2017, although this level is expected to decrease in the next few years as U.S. manufacturers increase domestic production levels. A bright spot for the team uniform industry is that many of the new high-tech specialty fabrics used in uniforms are produced primarily in the United States, which supports a healthy niche of domestic manufacturers that produce custom team uniforms using these materials.2 Consumers are willing to pay a higher price for a uniform that is durable and of high quality. Firms that provide a high level of customer service by producing special orders and making timely deliveries can establish a competitive advantage. While the majority of uniforms are sold through retail outlets, Internet sales are growing and becoming a more important sales channel. While we have been examining the overall market for athletic uniforms, C&C managers need to understand the size of the potential market for baseball uniforms to evaluate the company's future prospects. Perhaps the most important factor in assessing the market for baseball uniforms is the number of people playing baseball, and trade associations such as the Sports and Fitness Industry Association (SFIA) are a good source for this type of specific information. SFIA reports that in 2017, baseball was the second most popular team sport in the United States, based on total number of participants.3 According to statistics reported by the Sports Business Research Network (SBRnet) and shown in Exhibit T1.8, the number of people playing baseball has been in gradual decline since 2004.4 However, SFIA reported increases in casual baseball participation of greater than 10% in both 2016 and 2017.5 This increase is likely a result of Major League Baseball's "PLAY BALL" initiative launched in 2015.6 SBRnet also reports that 46.3% of baseball players in 2017 were between the ages of 7 and 17, and 62.3% of the players lived in a household with income of at least $75,000. The vast majority of players (78.8%) are male, and there has been recent growth in the number of people who are playing baseball 50 or more days each year.

A clustered vertical bar chart compares all participants and frequent participants (50 days and over per year) in a U.S. baseball team. The horizontal axis represents the year and ranges from 2004 to 2017, in increments of 1 year. The vertical axis represents the number of participants, in millions, and ranges from 0 to 18 million in increments of 2 million. The graphed data of all participants begins at a peak of about 15.8 million in 2004, declines to about 11.6 million in 2009, increases slightly to 12.2 million in 2010, declines slightly to a low of $11 million in 2014, followed by an increase to 12.1 million in 2016 and down to 12 million in 2017. The graphed data of frequent participants begins at about 5 million in 2004, fluctuates slightly through 2009, and drops to 2.8 million in 2010. It fluctuates slightly again through 2012 and increases to 2.9 million in 2014, followed by a low of 2 million in 2015 and a gradual increase to 2.4 million in 2017. All amounts are approximate.