Edward believes the company is doing just fine but he agrees to hire a consultant. After several weeks of study, the consultant issues a report that includes the following significant recommendations Inventory Control B.C. Company's inventory levels are too high. The entire inventory process - ordering, procurement, storage, and eventual sale - should be restructured to reduce inventory to more management levels. Cash Management. B.C. Company does not do a good job of converting receivables to cash. Vendors are paid too quickly. A restructuring of receivables and payables management should be performed in order to improve the company's cash position. Reengineer for Growth. B.C. Company has a strong balance sheet but relatively poor sales. The company's working capital (defined as current assets minus current liabilities) could easily support S10 million in sales.The company needs to grow in order to improve its profitability. Edward reads the consultant's report and shakes his head. It seems as though the consultant has been studying someone else's company. He plans to tell the Board the report is completely wrong and none of the recommendations should be followed You are the Chief Financial Officer for B.C. Company. Edward turns to you to help support her before the Board. Attached are the following to assist you with your analysis: Company balance sheets fo e past three years. B.C. r th The golf ball and golf accessories industry balance sheets for the past three years B.C. Company income statements for the past three years The golf ball and golf accessories industry income statements for the past three years . 2. 3. 4. After you analyze the data provided, prepare a report to Edward Taylor. The report should include the following 1. Strengths of B.C. Company 2. Weaknesses of B.C. Company 3. Key issues facing B.C. Company 4. Recommendations to Edward Taylor 5. Do you agree with the Consultant's report? .. COMPANY Balance Sheets At December 31 2015 %oftotal %Change 2014 %oftotal %Change 2013 %oftotal Current assets Cash and cash equivalents Accounts receivable Invento S697,227 1,018,729 277,039 8,340 127% $ 307,557 944,735 363,882 47,783 -19% $ 379,331 771,891 327,912 8,405 19% aid expenses 83% 469% Total current assets 2,001,335 8890 20% 1,663,957 1,487,539 87% Property, plant and equipment, net of 229,896 42,150 S2,273,381 196,223 10% 127,251 98,208 12% $ 1,712,998 accumulated depreciation 10% Other assets 55,624 Total assets 100% 19% $ 1,915,804 100% 100% %oftotal %Change %oftotal %Change %oftotal Current liabilities Current portion of long-term debt Accounts payable Accrued expenses 160,091 431,065 370,350 10,091 396,954 318,790 94% $ 160,092 503,737 359,040 7% 1486% $ 29% 16% 16% 17% Total current liabilities 961,506 272,605 1234,111 1,039.270 S2.273,381 725,835 430,195 1,156,030 759,774 19% $ 1,915,804 1,022,869 180,185 1,203,054 509,944 12% $ 1,712,998 42% 60% 139% 4% 49% Long-term debt Total liabilities 70% Stockholders' equit 40% 30% Total liabilities and stockholders' equity 100% 100% 100% GOLF BALL AND ACCESSORIES INDUSTRY Balance Sheets 5 At December 31 %oftotal %Change %oftotal %Change 2013 %oftotal 11 Current assets: Cash and cash equivalents Accounts receivable Invento Prepai $302,339 ,360,530 1,153,931 80,624 41% 29% 26% 53% $ 215,004 1,056,160 916,596 52,808 8% $ 234,840 991,915 799,140 56,080 27% 23% 28% 28% 23% aid expenses -6% Total current assets 2,897,424 57% 29% 2,240,568 59% 2,081,975 Property, plant and equipment, net of 40% 1,278,708 252,724 3,772,000 1,184,690 238,335 8% $ 3,505,000 accumulated depreciation 1,788,845 352,731 5,039,000 21 Other assets 40% Total assets 100% 34% $ 100% 100% 26 %oftotal %Change %oftotal %Change % of total 12% 10% 40% 20% Current liabilities 619,797 866,708 463,588 28% $ 482,816 686,504 403,604 1196 $ 434,625 354,000 1,402,000 708,010 2,110,010 Current portion oflong-term debt Accounts payable Accrued expenses 12% 13% 14% ,950,093 1,123,697 3,073,790 1,965,210 Total abiies and stockholders' equity S5,039.000 39% 1,572,924 746,856 2,319,780 1,452,220 34% $ 3,772,000 Total current liabilities 42% 12% 35 Long-term debt 22% 50% 20% Total liabilities 61% 33% 62% 10% Stockholders' cquit 39% 35% 40% 100% 100% 8% $ 3,505,000 100% BC Company 2015 BC Company 2014 BC Company 2013 2015 2014 2013 %oftotal %Change %oftotal % Change %oftotal %Change %oftotal %Change %oftotal %oftotal Current assets Cash and cash equivalents Accounts receivable Invento Prepaid expenses 41% 29% 26% 53% 31% 45% 12% 0% 7% 28% 23% 22% 45% 19% 127% 16% -19% 22% 11% 469% 27% 23% -24% -83% 24% 15% 2% Total current assets 57% 29% 88% 20% 59% 87% 12% 59% 87% Property, plant and equipment, net of accumulated depreciation 17% 2 Other assets 2% -24% 3% -43% Total assets 100% 34% 100% 19% 100% 8% 100% 12% 100% 100% %oftotal % Change %oftotal % Change %oftotal %Change %oftotal % Change %oftotal %oftotal Current liabilities 13% Current portion oflong-term debt Accounts payable 12% 17% 28% 26% 15% 7% 19% 1486% 1% 21% 17% -94% -21% -11% 12% 18% 29% 21% 12% Accrued expenses 2 3 Total current liabilities 39% 24% 42% 32% 42% 12% 38% 29% 40% 60% 20% Long-term debt 6 5 22% 50% 12% -37% 20% 5% 22% 139% Total liabilities 61% 33% 7% 62% -4% 60% 8 30% Stockholders' equit 9 0 39% 35% 46% 37% 39% 4% 40% 49% 40% Total liabilities and stockholders' equity 100% 34% 100% 19% 100% 8% 100% 12% 100% 100% K L B. C. COMPANY Income Statements For the Year Ended December 31 90 of total %Change %oftotal %Change % of total 2015 2014 2013 Net sales $ 6,298,020 100.00% 19.25% $ 5,281,555 100.00% 29.14% $ 4,089,662 100.00% 75.99% 24.01% 12.84% Cost of goods sold 4,736,603 75.21% 17.61% 4,027,230 76.25% 29.58% 3,107,854 Gross profit 1,561,417 24.79% 24.48% 1,254,325 23.75% 27.76% 981,808 975,542 585,875 (26,760 559,115 233,438 325,677 738,146 516,179 (2,163 514,016 208,526 305,490 525,164 456,644 (32,745 423,899 149,360 274,539 Selling, general and administrative costs 15.49% 32,16% 13.98% 40.56% Operating income 9.30% 13.50% 9.77% 13.04% 11.17% Other expense -0.42% 1137.17% -0.04% -93.39% -0.80% Income before income taxes 8.88% 8.77% 9.73% 21.26% 10.37% Income tax expense 3.71% 11.95% 3.95% 39.61% 3.65% Net income 5.17% 6.6 1% $ 5.78% 11.27% 6.71% GOLF BALL AND ACCESSORIES INDUSTRY Income Statements For the Year Ended December 31 % of total % Change % of total % Change % of total 2015 2014 2013 Net sales $ 9,121,000 100.00% 29.87% $ 7,023,000 100.00% 7.19% $ 6,552,000 4,855,032 1,696,968 1,310,400 386,568 58,968 327,600 133,005 194,595 100.00% 74. I 0% 25.90% 20.00% 5.90% -0.90% Cost of goods sold 6,795,145 2,325,855 25.50% 28.36% 1,869,805 74.50% 30.40% 5,211,066 74.20% 7.33% 1,811,934 1,383,531 Gross profit 25.80% 6.77% Selling, general and administr ative costs 20.50% 35.15% 19.70% 5.58% Operating income 5.00% 6.45% 428,403 105,345) 323,058 147,300 175,758= 2.50% - 6.10% 10.82% 456,050 145,936 310,114 127,147 182,967 Other expense 1.60% 38.53% 1.50% 78.65% Income before income taxes 3.40% 1.39% 2.01% 5.00% 2.03% 297% -4.01% 4.60% -1.39% Income tax expense -13.68% 2.10% 10.75% Net income 4.10% $ 9.68% $ BC Indus BC Company 2014 BC Company 2013 Indus Indus Company 2015 2015 2014 2013 % of total % Change % of total % Change % of total % Change % of total % Change % of total % of total Net sales 100.00% 29.87% 100.00% 19.25% 100.00% 7.19% 100.00% 29.14% 100.00% 100.00% Cost of goods sold 74.50% 30.40% 75.21% 17.61% 74.20% 7.33% 76.25% 29.58% 74.10% 75.99% Gross profit 25.50% 28.36% 24.79% 24.48% 25.80% 6.77% 23.75% 27.76% 25.90% 24.01% Selling, general and administrative costs 20.50% 35.15% 15.49% 32.16% 19.70% 5.58% 13.98% 40.56% 20.00% 12.84% Operating income 5.00% 6.45% 9.30% 13.50% 6.10% 10.82% 9.77% 13.04% 5.90% 11.17% Other expense -1.60% 38.53% -0.42% 1137.17% -1.50% 78.65% -0.04% -93.39% -0.90% -0.80% Income before income taxes 3.40% -4.01% 8.88% 8.77% 4.60% -1.39% 9.73% 21.26% 5.00% 10.37% Income tax expense 1.39% -13.68% 3.71% 11.95% 2.10% 10.75% 3.95% 39.61% 2.03% 3.65% Net income 2.01% 4.10% 5.17% 6.61% 2.50% -9.68% 5.78% 11.27% 2.97% 6.71% Edward believes the company is doing just fine but he agrees to hire a consultant. After several weeks of study, the consultant issues a report that includes the following significant recommendations Inventory Control B.C. Company's inventory levels are too high. The entire inventory process - ordering, procurement, storage, and eventual sale - should be restructured to reduce inventory to more management levels. Cash Management. B.C. Company does not do a good job of converting receivables to cash. Vendors are paid too quickly. A restructuring of receivables and payables management should be performed in order to improve the company's cash position. Reengineer for Growth. B.C. Company has a strong balance sheet but relatively poor sales. The company's working capital (defined as current assets minus current liabilities) could easily support S10 million in sales.The company needs to grow in order to improve its profitability. Edward reads the consultant's report and shakes his head. It seems as though the consultant has been studying someone else's company. He plans to tell the Board the report is completely wrong and none of the recommendations should be followed You are the Chief Financial Officer for B.C. Company. Edward turns to you to help support her before the Board. Attached are the following to assist you with your analysis: Company balance sheets fo e past three years. B.C. r th The golf ball and golf accessories industry balance sheets for the past three years B.C. Company income statements for the past three years The golf ball and golf accessories industry income statements for the past three years . 2. 3. 4. After you analyze the data provided, prepare a report to Edward Taylor. The report should include the following 1. Strengths of B.C. Company 2. Weaknesses of B.C. Company 3. Key issues facing B.C. Company 4. Recommendations to Edward Taylor 5. Do you agree with the Consultant's report? .. COMPANY Balance Sheets At December 31 2015 %oftotal %Change 2014 %oftotal %Change 2013 %oftotal Current assets Cash and cash equivalents Accounts receivable Invento S697,227 1,018,729 277,039 8,340 127% $ 307,557 944,735 363,882 47,783 -19% $ 379,331 771,891 327,912 8,405 19% aid expenses 83% 469% Total current assets 2,001,335 8890 20% 1,663,957 1,487,539 87% Property, plant and equipment, net of 229,896 42,150 S2,273,381 196,223 10% 127,251 98,208 12% $ 1,712,998 accumulated depreciation 10% Other assets 55,624 Total assets 100% 19% $ 1,915,804 100% 100% %oftotal %Change %oftotal %Change %oftotal Current liabilities Current portion of long-term debt Accounts payable Accrued expenses 160,091 431,065 370,350 10,091 396,954 318,790 94% $ 160,092 503,737 359,040 7% 1486% $ 29% 16% 16% 17% Total current liabilities 961,506 272,605 1234,111 1,039.270 S2.273,381 725,835 430,195 1,156,030 759,774 19% $ 1,915,804 1,022,869 180,185 1,203,054 509,944 12% $ 1,712,998 42% 60% 139% 4% 49% Long-term debt Total liabilities 70% Stockholders' equit 40% 30% Total liabilities and stockholders' equity 100% 100% 100% GOLF BALL AND ACCESSORIES INDUSTRY Balance Sheets 5 At December 31 %oftotal %Change %oftotal %Change 2013 %oftotal 11 Current assets: Cash and cash equivalents Accounts receivable Invento Prepai $302,339 ,360,530 1,153,931 80,624 41% 29% 26% 53% $ 215,004 1,056,160 916,596 52,808 8% $ 234,840 991,915 799,140 56,080 27% 23% 28% 28% 23% aid expenses -6% Total current assets 2,897,424 57% 29% 2,240,568 59% 2,081,975 Property, plant and equipment, net of 40% 1,278,708 252,724 3,772,000 1,184,690 238,335 8% $ 3,505,000 accumulated depreciation 1,788,845 352,731 5,039,000 21 Other assets 40% Total assets 100% 34% $ 100% 100% 26 %oftotal %Change %oftotal %Change % of total 12% 10% 40% 20% Current liabilities 619,797 866,708 463,588 28% $ 482,816 686,504 403,604 1196 $ 434,625 354,000 1,402,000 708,010 2,110,010 Current portion oflong-term debt Accounts payable Accrued expenses 12% 13% 14% ,950,093 1,123,697 3,073,790 1,965,210 Total abiies and stockholders' equity S5,039.000 39% 1,572,924 746,856 2,319,780 1,452,220 34% $ 3,772,000 Total current liabilities 42% 12% 35 Long-term debt 22% 50% 20% Total liabilities 61% 33% 62% 10% Stockholders' cquit 39% 35% 40% 100% 100% 8% $ 3,505,000 100% BC Company 2015 BC Company 2014 BC Company 2013 2015 2014 2013 %oftotal %Change %oftotal % Change %oftotal %Change %oftotal %Change %oftotal %oftotal Current assets Cash and cash equivalents Accounts receivable Invento Prepaid expenses 41% 29% 26% 53% 31% 45% 12% 0% 7% 28% 23% 22% 45% 19% 127% 16% -19% 22% 11% 469% 27% 23% -24% -83% 24% 15% 2% Total current assets 57% 29% 88% 20% 59% 87% 12% 59% 87% Property, plant and equipment, net of accumulated depreciation 17% 2 Other assets 2% -24% 3% -43% Total assets 100% 34% 100% 19% 100% 8% 100% 12% 100% 100% %oftotal % Change %oftotal % Change %oftotal %Change %oftotal % Change %oftotal %oftotal Current liabilities 13% Current portion oflong-term debt Accounts payable 12% 17% 28% 26% 15% 7% 19% 1486% 1% 21% 17% -94% -21% -11% 12% 18% 29% 21% 12% Accrued expenses 2 3 Total current liabilities 39% 24% 42% 32% 42% 12% 38% 29% 40% 60% 20% Long-term debt 6 5 22% 50% 12% -37% 20% 5% 22% 139% Total liabilities 61% 33% 7% 62% -4% 60% 8 30% Stockholders' equit 9 0 39% 35% 46% 37% 39% 4% 40% 49% 40% Total liabilities and stockholders' equity 100% 34% 100% 19% 100% 8% 100% 12% 100% 100% K L B. C. COMPANY Income Statements For the Year Ended December 31 90 of total %Change %oftotal %Change % of total 2015 2014 2013 Net sales $ 6,298,020 100.00% 19.25% $ 5,281,555 100.00% 29.14% $ 4,089,662 100.00% 75.99% 24.01% 12.84% Cost of goods sold 4,736,603 75.21% 17.61% 4,027,230 76.25% 29.58% 3,107,854 Gross profit 1,561,417 24.79% 24.48% 1,254,325 23.75% 27.76% 981,808 975,542 585,875 (26,760 559,115 233,438 325,677 738,146 516,179 (2,163 514,016 208,526 305,490 525,164 456,644 (32,745 423,899 149,360 274,539 Selling, general and administrative costs 15.49% 32,16% 13.98% 40.56% Operating income 9.30% 13.50% 9.77% 13.04% 11.17% Other expense -0.42% 1137.17% -0.04% -93.39% -0.80% Income before income taxes 8.88% 8.77% 9.73% 21.26% 10.37% Income tax expense 3.71% 11.95% 3.95% 39.61% 3.65% Net income 5.17% 6.6 1% $ 5.78% 11.27% 6.71% GOLF BALL AND ACCESSORIES INDUSTRY Income Statements For the Year Ended December 31 % of total % Change % of total % Change % of total 2015 2014 2013 Net sales $ 9,121,000 100.00% 29.87% $ 7,023,000 100.00% 7.19% $ 6,552,000 4,855,032 1,696,968 1,310,400 386,568 58,968 327,600 133,005 194,595 100.00% 74. I 0% 25.90% 20.00% 5.90% -0.90% Cost of goods sold 6,795,145 2,325,855 25.50% 28.36% 1,869,805 74.50% 30.40% 5,211,066 74.20% 7.33% 1,811,934 1,383,531 Gross profit 25.80% 6.77% Selling, general and administr ative costs 20.50% 35.15% 19.70% 5.58% Operating income 5.00% 6.45% 428,403 105,345) 323,058 147,300 175,758= 2.50% - 6.10% 10.82% 456,050 145,936 310,114 127,147 182,967 Other expense 1.60% 38.53% 1.50% 78.65% Income before income taxes 3.40% 1.39% 2.01% 5.00% 2.03% 297% -4.01% 4.60% -1.39% Income tax expense -13.68% 2.10% 10.75% Net income 4.10% $ 9.68% $ BC Indus BC Company 2014 BC Company 2013 Indus Indus Company 2015 2015 2014 2013 % of total % Change % of total % Change % of total % Change % of total % Change % of total % of total Net sales 100.00% 29.87% 100.00% 19.25% 100.00% 7.19% 100.00% 29.14% 100.00% 100.00% Cost of goods sold 74.50% 30.40% 75.21% 17.61% 74.20% 7.33% 76.25% 29.58% 74.10% 75.99% Gross profit 25.50% 28.36% 24.79% 24.48% 25.80% 6.77% 23.75% 27.76% 25.90% 24.01% Selling, general and administrative costs 20.50% 35.15% 15.49% 32.16% 19.70% 5.58% 13.98% 40.56% 20.00% 12.84% Operating income 5.00% 6.45% 9.30% 13.50% 6.10% 10.82% 9.77% 13.04% 5.90% 11.17% Other expense -1.60% 38.53% -0.42% 1137.17% -1.50% 78.65% -0.04% -93.39% -0.90% -0.80% Income before income taxes 3.40% -4.01% 8.88% 8.77% 4.60% -1.39% 9.73% 21.26% 5.00% 10.37% Income tax expense 1.39% -13.68% 3.71% 11.95% 2.10% 10.75% 3.95% 39.61% 2.03% 3.65% Net income 2.01% 4.10% 5.17% 6.61% 2.50% -9.68% 5.78% 11.27% 2.97% 6.71%
