Paper instructions
Discussion 1
Company: AMAZON
Consider your current company, or a company that you have previously worked for, and describe and critique how financial statement analysis could be used for that organization. If you do not have relevant work experience, use the GCU Library to locate an article on financial statement analysis and compare the processes recommended by the article to those in the textbook. Your initial post should be approximately 250 words. To participate in follow up discussion, ask questions and post comments regarding classmates’ posts, or respond to follow-up questions posted by the instructor.
Please include proper citations in your discussion post. Points will be deducted if proper citations are not used.
DISCUSSION 2
Review Case 12.21 in your textbook. Share your observations and recommendations for the company based on the data provided. Please review the posts of your classmates before responding to Case 12.21; provide responses that are different than what your classmates’ have posted and recommended.
To participate in follow up discussion, ask questions and post comments regarding classmates’ posts or respond to follow-up questions posted by the instructor.
Please include proper citations in your discussion post. Points will be deducted if proper citations are not used.
BOOK:
Managerial Accounting, Enhanced
2022/05/26 O500 ACC650 GCU Davis Managerial Accounting, 4e – Green Connor
2022/05/26 O500 ACC650 GCU Davis Managerial Accounting, 4e –
Davis, Managerial Accounting, 4e
Cases
C&C Sports Continuing Case
12.21 (LO 1, 2, 3, 4) Comprehensive Financial Statement Analysis Using Exhibit 12.9 as a guide, compare C&C Sports’ performance to the industry averages. What particular observations and recommendations do you have for George Douglas, president of C&C Sports?
EXHIBIT 12.9 C&C Sports industry data
While it is relatively easy to determine C&C’s industry under either the SIC or the NAICS system, that is not the case for many companies. Consider General Electric, which you may think is in the light bulb business. GE does make light bulbs, but the company also makes locomotives, automotive bumper systems, aircraft engines, and magnetic resonance imaging (MRI) equipment. It even has a large financing division. No single SIC or NAICS code captures General Electric’s business, nor that of any other conglomerate. Even smaller companies that operate in more than one distinct industry are difficult to classify.
Reality Check
Growing strong farms
Remember when your parents told you that drinking milk would help your bones to grow strong? Well, how does the dairy farmer who produces that milk help the farm to grow strong? One tool the farmer uses is financial ratio analysis.
After a financial crisis hit the farming industry in the 1980s, the Farm Financial Standards Task Force developed a set of financial statement guidelines that included 16 key financial ratios. The guidelines provided benchmarks against which farmers could compare their own performance. For instance, the task force recommended a current ratio of between 1.5 and 2.0, a debt ratio of less than 40%, and a debt-to-equity ratio of less than 0.67.
How does today’s farm compare to these guidelines? An Iowa State University report on 22 beef producers found a high degree of variability among them. Though the farms’ current ratios averaged 2.1, they ranged from a low of 0.4 to a high of 8.7. Return on equity averaged 9.3%, within a range of −8.1% to 45.9%.
Ratio analysis isn’t limited to the farmers’ financial statements, however. Dairy farmers can also monitor their performance by applying ratio analysis to their operational data. Two key measures for dairy farms are pounds of milk per cow (the benchmark is at least 17,500) and milk income per cow (the benchmark is at least $2,100).
Sources: John Berry, “Calculating the ‘Sweet 16’ Farm Financial Measures,” Penn State University College of Agricultural Sciences, http://extension.psu.edu/business/farm/management/financial-management/topics/calculating-the-sweet-16-farm-financial-measures (accessed July 14, 2016); Richard D. Duvick, “Farm Financial Records: What Is Needed and How to Get Them,” Computerized Farm Record Keeping Bulletin 890-01 (Columbus: Ohio State University), http://ohioline.osu.edu/b890/b890_20.html (accessed February 17, 2013, site now discontinued); Ralph Mayer, Financial Benchmarks for Beef Producers, 2001 Beef Research Report A.S. Leaflet R1752 (Ames: Iowa State University, 2001); Larry F. Tranel and Gary Frank, Managing Dairy Farm Finances, ISU Extension Publication LT-105 (Ames: Iowa State University, 2002).
Industry Statistics
Developing an understanding of a company’s competitive environment is an important part of a financial analysis. Numerous resources are available to assist in this task. The U.S. government is a good source of industry data, much of which is available on the Internet. For example, the U.S. Census Bureau collects a wide array of statistics and makes them available on its website, http://www.census.gov/. Using the Census Bureau’s Annual Survey of Manufactures, C&C’s managers could determine the size of their market. Since this survey does not show 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 12.10, shipments of 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 decrease 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.
EXHIBIT 12.10 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.
Industry statistics are also available from professional research and consulting organizations. Many investment firms employ analysts who specialize in a particular industry and write research reports and forecasts. 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.3
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 channel.
Understanding the size of the potential market is important when evaluating a company’s future prospects. Trade associations such as The Sports and Fitness Industry Association (SFIA) are a good source for this type of specific information. SFIA reported that in 2017 baseball was the second most popular team sport in the U.S., based on total number of participants.4 According to statistics reported by the Sports Business Research Network (SBRnet) and shown in Exhibit 12.11, the number of people playing baseball has been in gradual decline since 2004.5 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 (78.8%) of players are male, and there has been recent growth in the number of people who are playing baseball 50 or more days each year.
EXHIBIT 12.11 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 vs. Frequent
The final task in preparing an industry analysis is to look at the major competitors. Doing so means conducting horizontal, vertical, and ratio analyses based on their financial statements, which can be found in published annual reports or in required SEC 10-K and 10-Q filings, if the companies are traded publicly. SEC filings are available online at http://sec.gov/edgar.shtml. Other useful sources of data on competitors are Value Line, Hoover’s, www.corporateinformation.com, and Mergent.