Financial Statements as a Key Source of Information for Financial Decisions?

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.

Question:

1. Analyze the financial performance of Drive It Long Golf, Inc. using the following tools:

a. time and trend analysis

b. peer-group analysis

c. 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:

Short-term solvency

Asset Utilization

Long-term solvency

Profitability

Drive It Long, Inc. 2015 Income Statement Sales $422,045 $291,090 37,053 $93,902 $16,400 77.502 27,126 $50,376 $20,000 30.376 Cost of Goods Sold Depreciation Earnings Before Interest and Taxes Interest Paid Taxable Income Taxes (35%) Net Income Dividends Retained Earnings Table 4. income Statement, Drive It Long Golf, Ine. Drive It Long, Inc. 2015 Income Statement Sales $422,045 $291,090 37,053 $93,902 $16,400 77.502 27,126 $50,376 $20,000 30.376 Cost of Goods Sold Depreciation Earnings Before Interest and Taxes Interest Paid Taxable Income Taxes (35%) Net Income Dividends Retained Earnings Table 4. income Statement, Drive It Long Golf, Ine