Mandrake Motorcycles was started 3 years ago. The company manufactures and sells classic motorcycles similar to Harley Davidsons and Indians made in the 1940's. They have provided financial information for the past two years. Marty "Monk Fisher owns the largest motorcycle dealership in north Florida. Recently, he was approached by Bob Sherman, founder of Mandrake Motorcycles, and offered the opportunity to be the sole distributor of Mandrake cycles in the state. Acceptance of the offer would require Monk to open a dedicated showroom and repair facility and stock Mandrake parts. Monk is quite impressed by the Mandrake product but, before making a major investment, he wants to be confident the company will be around for the long haul. Analyze the following financial statements, including some relevant financial ratios. Based on your analysis, comment on the matters that Monk should probe in an upcoming meeting with Bob Sherman of Mandrake. Do you think Monk should open a Mandrake showroom? Why or why not? Mandrake Motor Cycles December 31, December 31, Percent Balance Sheets 2018 2017 Change Change W Assets Current assets Cash and cash equivalents Accounts receivable Inventory $ $ $ 208,579 157,450 785,657 399,339 162,618 568,880 (190,760) (5,168) 216,777 -47.8% -3.2% 38.1% $ Assets Current assets Cash and cash equivalents Accounts receivable Inventory Other current assets Total current assets Property, plant and equipment, net Total assets $ 208,579 157,450 785,657 175,864 1,327,550 998,547 $ 2,326,097 $ 399,339 162,618 568,880 187,982 1,318,819 1,099,544 $ 2,418,363 (190,760) (5,168) 216,777 (12,118) 8,731 (100.997) (92.266) -47.8% -3.2% 38.1% -6.4% 0.7% -9.2% -3.8% $ $ Liabilities and stockholders' equity Current liabilities Accounts payable Short-term debt payable Other current liabilities Total current liabilities Long-term debt Total liabilities 243,785 341,680 255,642 841,107 137,579 978,686 189,911 293,553 252,971 736,435 355,000 1,091,435 53,874 48,127 2,671 104,672 (217,421) (112,749) 28.4% 16.4% 1.1% 14.2% -61.2% -10.3% Stockholders' equity Common stock Retained earnings Total stockholders' equity 1,250,000 97,411 1,347,411 1,250,000 76,928 1,326,928 20,483 20,483 0.0% 26.6% 1.5% Retained earnings Total stockholders' equity ,200,000 97,411 1,347,411 250,000 76,928 1,326,928 20,483 20,483 0.070 26.6% 1.5% Total liabilities and stockholders' equity $ 2,326,097 $ 2,418,363 (92.266) -3.8% 1 Mandrake Motor Cycles Income Statements Year Ended Year Ended December 31, December 31, 2018 2017 Net sales Cost of goods sold Gross margin Operating expenses: $ 1,476,941 912,386 564,555 $ 1,576,941 1,103,859 473,082 $ (100,000) $ (191,473) $ 91,473 -6.3% -17.3% 19.3% Mandrake Motor Cycles Income Statements Year Ended Year Ended December 31, December 31, 2018 2017 $ 1,476,941 912,386 564,555 $ 1,576,941 1,103,859 473,082 $ (100,000) $ (191,473) $ 91,473 -6.3% -17.3% 19.3% 295,388 201,564 $ 93,824 46.5% Net sales Cost of goods sold Gross margin Operating expenses: Selling expenses General and administrative expenses Total operating expenses Operating income Interest expense Income before taxes Income taxes Net income 192,002 487,390 77,165 45,652 31,513 11,030 20,483 185,460 387,024 86,058 70,248 15,810 5,534 10,276 $ $ $ $ $ $ $ 6,542 100,366 (8,893) (24,596) 15,703 5,496 10,207 3.5% 25.9% -10.3% -35.0% 99.3% 99.3% 99.3% $ $
