You are the Financial Manager of Wilson Sporting Goods and you have approached Ms. Joan Perez, the Manager of ABP Bank to make an investment in your company. Wilson Sporting Goods is a company that manufactures golf clubs, baseball bats, basketball goals, and other similar items. In your initial meeting with Ms. Perez, you have pointed out the steady increase in sales and net income. Ms. Perez asked you to make a thorough analysis on the on all areas of the current and future financial health as a basis later of her decision. There was a steady real growth of 2 to 3 percent in gross domestic product during the period under study. The rate of inflation was in the 3 to 4 percent range. The firm does not currently pay a cash dividend, and return to the investor must come from selling the stock in the future. Exhibit 1. WILSON SPORTING GOODS Income Statement 2020 2021 2022 Sales (all on credit) $ 1,500,000 $ 1,800,000 $ 2,160,000 Cost of goods sold 950,000 1,120,000 1,300,000 Gross profit 550,000 680,000 860,000 Selling and administrative expense* 380,000 490,000 590,000 Operating profit 170,000 190,000 270,000 Interest expense 30,000 40,000 85,000 Net income before taxes 140,000 150,000 185,000 Taxes 46,120 48,720 64,850 Net income $ 93,880 $ 101,280 $ 120,150 Shares 40,000 40,000 46,000 Earnings per share $ 2.35 $ 2.53 $ 2.61 *Includes $ 20,000 in lease payments for each year Exhibit 2 WILSON SPORTING GOODS Balance Sheet 2020 2021 2022 Assets Cash $ 20,000 $ 30,000 $ 20,000 Marketable securities 30,000 35,000 50,000 Accounts receivable 150,000 230,000 330,000 Inventory 250,000 285,000 325,000 Total current assets 450,000 580,000 725,000 Net plant equipment 550,000 720,000 1,169,000 Total assets $ 1,000,000 $ 1,300,000 $ 1,894,000 Liabilities and Stockholders Equity Accounts payable $ 100,000 $ 225,000 $ 200,000 Notes payable (bank) 100,000 100,000 300,000 Total current liabilities 200,000 325,000 500,000 Long-term liabilities 250,000 331,120 550,740 Total liabilities 450,000 656,120 1,050,740 Common stock ($10 par) 400,000 400,000 460,000 Capital paid in excess of par 50,000 50,000 80,000 Retained earnings 100,000 193,880 303,260 Total stockholders equity 550,000 643,880 843,260 Total liabilities and stockholders equity $ 1,000,000 $ 1,300,000 $ 1,894,000 Exhibit 3 Selected Industry Ratios 2020 2021 2022 Growth in sales - 9.98% 10.02% Profit margin 5,75% 5.80% 5.81% Return on assets (investment) 8.22% 8.24% 8.48% Return on equity 13.26% 13.62% 14.16% Receivable turnover 10x 9.5x 10.01x Average collection period 36 days 37.9 days 35.6 days Inventory turnover 5.71x 5.62x 5.84x Fixed asset turnover 2.75x 2.66x 2.20x Total asset turnover 1.43x 1.42x 1.46x Current ratio 2.10x 2.08x 2.15x Quick ratio 1.05x 1.02x 1.10x Debt to total assets 38% 39.5% 40.1% Times interest earned 5.00x 5.20x 5.26x Fixed charge coverage 3.85x 3.95x 3.97x Growth in EPS - 9.7% 9.8% Required: 1. Make an analysis of the financial condition and performance of the company using different techniques in Financial Statement Analysis. 2. Based on the analysis, what can you say about the liquidity, profitability, solvency, and growth of the company? 3. Based on your trend analysis, what is the future of company? 4. What are the strengths of the company that you could mention to encourage the manager to make an investment in the company? 5. What are the weaknesses of the company that you could strengthen? What are your proposed strategies to address these weaknesses?