Please go to Topic Focus 1 at the end of Chapter 1 and review the materials provided regarding C&C Sports.

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

President George Douglas Vice President- Vice President- Vice President- Finance and Operations Marketing Administration Chad Davis Jonathan Smith Claire Elliot Inventory Production Controller Administrative Sales Staff Advertising Staff Manager Manager Erin Newton Staff (3) (7) (1) Bradley Austin Mary Townsley Sewing Machine Purchasing Agent Operators (6) Warehouse Packaging Personnel (3) (2) Plotter/Pattern Designer (1) Chenille Machine Operator (1)Business decisions are always made within the context of a specic organization. To help you understand how to use managerial accounting information in making business decisions, we will focus throughout this book on a hypothetical company called CEEC Sports, a manufacturer of athletic uniforms. By focusing on a single corn we hope to help you understand how managerial decisions unfold within the organization. Although CEzC . D is ctitious, its story is based on that of a similar realworld company. CSC's History CEIC Sports is located in Brownsville, Texas, where it has been run by the Douglas family since 1928. The company began as a small sewing operation that supplied clothing to workers on the Gateway International Bridge. As Brownsville grew and workers came and went, the Douglases began to look for a market niche to guide the companjfs future growth. Recognizing the increasing number of youth participating in organized sports, the family decided to manufacture baseball uniforms. Today, President George Douglas heads the third generation of leadership at the company, and several other relatives hold key management positions. Exhibit T1.1 shows C&C Sports' current organization chart. Woe President Marketing mm Saw: munch martian-BIB} EXHIBIT T1.1 CS:C Sports\" organization chart. I: 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 CSzC 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 ber into nished yarn by covering, twisting, texturizing, and coloring it. Bradley Textile Mills then uses the nished yarn to weave the fabric that C&C Sports buys. Cc'izC Sports manufactures the uniforms and sells them to retailers such as Universal Sports Exchange= which resell them to the end customer. Polymer A Retailer pparel . Producer Manufacturer MM End a! ,m Sports Customer Wm Inc Ermine EXHIBIT T1.2 (35d: Sports\" supply chain. 1While Exhibit T12 shows the major links in the supply chain, a number of other rms play a role as well. For instance= transportation companies provide shipping services between (38$ Sports and Universal Sports Exchange. And providers of other item s= such as buttons and thread, supply C&C's need for production materials. If C&C is to remain successful, it must generate sufficient resources to continue operating. To date, the company has enjoyed moderate financial success. It * st financial statements are presented in Exhibits Ti.3, T1.4, and T1.5. A B C D C&C SPORTS 2 Income Statements 3 for the Years Ended December 31 4 5 2020 2019 2018 6 Sales $ 7,855,000 $ 7,015,000 $ 7,065,000 7 Cost of goods sold 5,817,590 5,215,000 5,304,600 8 Gross profit 2,037,410 1,800,000 1,760,400 9 Selling and administrative expenses 1,735,539 1,570,689 1,555,778 10 Operating income 301,871 229,311 204,622 11 Interest expense 41,711 43,210 45,698 12 Income before taxes 260,160 186,101 158,924 13 Tax expense (30%) 78,048 55,830 47,677 14 Net income $ 182,112 $ 130,271 $ 111,247EXHIBIT T1.3 C&C Sports' income statement. A B C D E F C&C SPORTS 2 Balance Sheets 3 As of December 31 4 5 2020 2019 6 Cash $ 7,752 $ 36,773 7 Accounts receivable, net 578,639 540,462 8 Raw materials $ 682,000 $ 566,000 9 Work in process 14,660 14,630 10 Finished goods 227,270 211,512 11 Total inventories 923,930 792,142 12 Prepaid expenses 24,388 8,165 13 Total current assets 1,534,709 1,377,542 14 Machinery and equipment, net 365,335 491,607 15 Other assets 29,937 33,707 16 Total assets $1,929,981 $ 1,902,856 17 18 Accounts payable $ 441,602 $ 487,912 19 Accrued liabilities 84,642 168,319 20 Short-term debt 125,000 110,000 21 Current maturities of long-term debt 40,000 40,000 22 Total current liabilities 691,244 806,231 23 Long-term debt 410,000 450,000 24 Total liabilities 1,101,244 1,256,231 25 26 Common stock 250,000 250,000 27 Retained earnings 578,737 396,625 28 Total stockholders' equity 828,737 646,625 29 Total liabilities and stockholders' equity $1,929,981 $ 1,902,856EXHIBIT T1.4 C&C Sports' balance sheets. A B C D E F G 1 C&C SPORTS Statements of Cash Flows 3 for the Years Ended December 31 4 5 2020 2019 2018 6 Cash flows from operating activities Net income $182,112 $ 130,271 $ 111,247 Adjustments to reconcile net income to cash provided by operating activities 9 Depreciation 126,272 120,163 124,731 10 Changes in operating assets and liabilities 11 Accounts receivable (38,177) (31,466) (38,663) 12 Inventories (131,788) (98,510) (105,411) 13 Prepaid expenses/other assets (12,453) (14,507) (22,116) 14 Accounts payable (46,310) (28,438) 8,197 15 Accrued liabilities (83,677) (55,267) (38,575) 16 Net cash provided (used) by operating activities (4,021) 22,246 39,410 17 Net cash provided (used) by investing activities 0 0 0 18 Cash flows from financing activities 19 Short-term borrowing 15,000 0 0 20 Repayment of long-term debt (40,000) (40,000) (40,000 21 Net cash provided (used) by financing activities (25,000) (40,000) (40,000) 22 Increase/(Decrease) in cash (29,021) (17,754) (590) 23 Cash at beginning of period 36,773 54,527 55,117 24 Cash at end of period $ 7,752 $ 36,773 $ 54,527EXHIBIT Ti.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. 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. Other, 26.5% Rent & utilities, 2.4% Profit, 4.7% Wages, 23.4% 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 b' -ce 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 ass d 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 sour 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 22.096 22.39% 22.02% Operating income 3.84% 3.27% 2.909% Net income 2.3296 1.86% 1.5796 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 47.8796 41.6396 Total current assets 79.52% 72.39% Machinery and equipment, net 18.93% 25.8496 Total assets 100.00% 100.009% 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 StatisticsIndustry 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 no [ 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 Ti.7, shipments these uniforms have been somewhat cyclical-increasing to 2003 and then falling to 2006, increasing to 2008 and then falling to 2011, and finally increasing to 2016. The decreas 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. $300 $250 $200 $ Millions $150 $100 $ 50 $ 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Year 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 channelWhile 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 association - -nc 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 popul 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." 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. 18 All participants _ Frequent participants (50+ days/yr) 16 14 12 Participants (millions) HALLLLLL 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Year EXHIBIT T1.8 U.S. participants in team baseball 7 years of age or older, at least once per year. Source: Sports Business Research Network, Baseball: Participation by Total us. Frequent