PRACTICE PROBLEM IN FINANCIAL STATEMENT ANALYSIS Published financial statements provide information to a diverse group of users, such as stockholders, potential stockholders, creditors, and managers. Financial statement analysis is the process of interpreting and evaluating financial statements by using the data in the statements to compare current period results with previous periods and to investigate relationships within and among the various components of the statements. This project requires students to obtain a company's annual report, find specific information from the report, and calculate selected ratios for the company. This semester we will study the 2019 annual report of Columbia Sportswear Company. PLEASE READ ALL OF THE INSTRUCTIONS CAREFULLY BEFORE BEGINNING THE PROJECT. Project overview and brief instructions: 1. Obtain the Fiscal Year 2019 financial statements (Annual Report on Form 10-K) for Columbia Sportswear. 2. Print out these instructions, and answer the questions below about the company. 3. AFTER you have answered the questions, open and complete the online quiz. Your project grade is determined by the eCampus quiz. This quiz is timed; DO NOT OPEN the online quiz until you have answered the questions on paper. (See details below) Detailed instructions: 1. Obtain the Fiscal Year 2019 financial statements for Columbia Sportswear. Publicly traded companies are required to make regular financial reports to the Securities and Exchange Commission. The required annual report is known as the 10-K, and the SEC makes these 10-K reports available on their website. Many publicly traded companies also post their financial results on the company's web site; it may be included as part of the company's annual report to investors. Columbia's statements can be found on both the SEC website and the company's website. You can obtain Columbia's statements from either site: (a) Using the SEC's website To find the statements on the SEC website, go to www.sec.gov. At the top right of the page, click on "company filings"; under company name type in Columbia Sportswear. When the company's filings list appears, click on the 10-K. The statements are found as Item 8 of the 10-K report. (b) Go to the company's own website at www.Columbia.com. At the bottom of the page, click "Investor relations". Then click "SEC Filings/Annual Report" and you'll see the latest annual report (the 10-K). The entire 10-K is 87 pages long! You do not need to print out the entire 10-K or annual report. All of the questions can be answered by reading the statements online. However, for those who prefer to work from a hard copy of the statements, I suggest you print only the four financial statements since the answers to most of the questions can be found there. 2. Answer the questions below using information found in the Fiscal Year 2019 statements. COLUMBIA SPORTSWEAR COMPANY - FINANCIAL STATEMENT ANALYSIS QUESTIONS Note: Columbia's financial statements show amounts in thousands, except per share amounts. The questions and answers here and in the project quiz will follow the same format. (In other words, you do NOT need to add 3 zeros to all of your answers.) 1. In what state is Columbia incorporated? Where are the company's principal offices? 2. Based on Item 1 of the 10-K, briefly describe Columbia's business. What are Columbia's four geographic segments? 3. Statements of publically traded companies must be audited, and the audit report, or "Report of the Independent Registered Public Accounting Firm", is included as part of the annual report. Columbia includes the audit report right before the financial statements. Who is the company's auditor? To whom is the auditor's report addressed? 4. According to the first paragraph in the Basis for Opinion section of the auditor's report, who is responsible for the information found in the financial reports? What is the auditor's responsibility? 5. When does Columbia's fiscal year end? 6. Assets: On the balance sheet, what amount does Columbia report for (a) current assets? (b) total assets? 7. Current assets make up what percentage of total assets? 8. What is the largest current asset shown on the balance sheet? What is the largest non-current asset shown on the balance sheet? 9. Columbia's Fiscal Year 2019 balance sheet shows Accounts Receivable of $488,233, which represents the amount the company actually expects to collect from its customers. What is the company's estimate of the amount of receivables that will NOT be collected? (That is, what is the allowance for uncollectible accounts?) 10. Columbia's Fiscal Year 2019 balance sheet shows Inventories of $605,968. According to Note 2, what inventory cost flow method does Columbia use to report inventory cost? 11. What depreciation method does Columbia use for financial reporting for its Property, plant, and equipment? (See Note 2) 12. Columbia's Fiscal Year 2019 balance sheet reports Property, plant, and equipment, net - $346,651. According to Note 6, what is the largest component of PP&E? How much is the company's accumulated depreciation as of December 31, 2019? 13. Liabilities: On the balance sheet, what amount does Columbia report as (a) current liabilities? (b) total liabilities? 14. Current liabilities make up what percentage of total liabilities? 15. What is the largest current liability shown on the balance sheet? What is the largest non-current liability shown on the balance sheet? 16. Is Columbia authorized to issue preferred stock? How many shares are authorized? have been issued? 17. What is the par value of the company's common stock? 18. As of December 31, 2019, how many shares of common stock are (a) authorized? (b) issued? (c) outstanding? (d) held in the treasury? 19. What is the average issue price per share for the common stock? 20. What is Columbia Sportswear Company shareholders' equity as of December 31, 2018 and 2019, respectively? How much is total equity? What accounts for the difference between Columbia Sportswear Company shareholders' equity and total equity? 21. What specific name does Columbia use for its income statement? 22. How much net sales revenue did Columbia report for 2019? Did this amount increase or decrease from the 2018 amount? 23. According to Note 2, when does Columbia recognize sales revenue? 24. What is Columbia's largest expense reported on the income statement? 25. On its income statement, Columbia reports income tax expense of $74,940 for 2019. However, companies often actually pay a different amount for taxes than is reported. Sometimes there are differences between accounting income determined using GAAP and taxable income, which is determined using tax rules. Sometimes there are differences in the timing of recognition of revenues and expenses. Either of these can lead to a company's reporting one amount as tax expense and actually paying a different amount. Using information provided at the bottom of the Statement of Cash Flows, how much did Columbia actually pay (in cash) for income taxes in 2019? 26. On the income statement, companies report their net income, and also provide information about net income on a per share basis. What was Columbia's basic earnings per common share for 2019? Did this amount increase or decrease from the previous year? By how much? What was Columbia's diluted earnings per common share for 2019? Did this amount increase or decrease from last year? By how much? 27. Did Columbia pay dividends during 2019? If so, how much in total? Per share? 28. The statement of cash flows shows sources and uses of cash in three categories: operating, investing, and financing activities. For Columbia in 2019, which category (ies) reported net cash provided? Which reported net cash used? 28. On the statement of cash flows, which investing activity caused the largest cash inflow during 2019? The largest cash outflow? 29. On the statement of cash flows, which financing activity caused the largest cash inflow of cash during 2019? The largest cash outflow? Companies use ratios to express relationships between items on the financial statements; these ratios can identify or highlight important financial results. For the next questions, you are asked to compute various ratios for Columbia. Some of these ratios have already been discussed in class; others will be new to you. Formulas are provided to help you with these calculations. Note that whenever a formula asks for an average amount (such as average assets), add the beginning of the year amount (which is the same as the ending amount last year) and the end of the year amount, then divide the total by 2. Calculate the following ratios for Columbia for 2019, or as of December 31, 2019: 30. working capital current assets - current liabilities 31. current ratio current assets current liabilities 32. acid test ratio cash + short-term investments + receivables current liabilities 33. accounts receivable net sales turnover average AR 34. days' sales in average AR receivables net sales/365 35. inventory turnover cost of goods sold average inventory 36. return on common net income - preferred dividends equity average total equity (see Notes 1 and 2 below) 37. # times interest earned net income + interest exp + income tax exp interest expense 38. debt to equity ratio total liabilities total stockholders' equity 39. gross profit percentage gross profit sales Note 1: Use Net Income & Total Equity, not "net income & equity attributable to Columbia Sportswear Company" Note 2: Since Columbia has no preferred stock issued, there are no preferred dividends