Spreadsheet Project #1

Case Analysis

The attached case presents a small manufacturer of sporting goods. A brief outline of the
firm and its industry is given, as well as a few tips for your attention. You are given three
years’ worth of income statements and balance sheets to examine.

You are a financial analyst working for an investment bank. This manufacturer has asked
for your bank’s help in raising capital for the upcoming season’s production
requirements. It is your job to analyze the financial statements and comment to the
investment brokers on this firm’s current financial situation. It is late July, and the firm’s
financial statements (representing the fiscal year ending June 30) have just been released.

For this project you must recreate the attached financial statements on separate
worksheets in an Excel workbook. Then, on another worksheet, you must create formulas
to calculate the financial ratios that can be derived from the given financial statements.
These ratios are to be calculated using formulas in the cells that are linked to the other
worksheets: no credit will be given if the ratios are calculated by hand and entered into
the cells. You must determine which ratios can be calculated with the information given.
There are enough data for you to calculate multiple liquidity, asset management,
leverage, and profitability ratios. You must calculate the Du Pont ratio analysis
separately. All three years’ worth of ratios must be calculated, and should be presented in
chronological order for you to do trend analysis.

Next, you must write a one-page paper discussing the findings of your ratio analysis. You
must include not only the current situation, but also how the ratios have changed over the
past three years (trend analysis). Any recommendations you can make as to what the firm
can do to correct any problem areas would make you look better in the eyes of your
superiors. Spelling, punctuation, grammar, sentence construction and a logical analysis
are all considered in the grade.

You must turn in both a hard copy and an email of your Excel file with your work. Fit all
of your ratio analysis on one page in Excel, so that your hard copy is two pages (one page
of text and one page of ratio analysis). Make sure that the file you email is free of viruses.

Pointers that will improve your grade on this project

 Do not quote the figures you calculated in your ratio analysis within the report – I
can read the figures for myself. Instead tell me what you see going on with the
numbers (the trends and how you interpret those trends).
 Do not bring in outside information (material not included in the case documents)
in your paper – analyze only what you are given.
 Be concise – use the fewest words necessary to make your points.

This project is due on October 14. Late assignments will not be accepted and will receive
a grade of zero.

FIN 3010 Page 1 of 4 [Dr. Irons]

 Outdoor Sports, Inc.

Outdoor Sports, Inc. is a manufacturer of surfboards, wind surfers, and related

equipment. The company was started by two surfers tinkering in their garage with
surfboards of their own design. The company has grown rapidly, cashing in on the
increasing popularity of wind surfing.

Outdoor Sports’ business is highly cyclical. Inventory is built up during the late fall and
winter months, and the majority of sales are booked and delivered to distributors during
the early spring. Competition among the many manufacturers of this easily made product
line is intense. Small manufacturers like Outdoor Sports are under great pressure from
major sports equipment makers, who have substantial promotional resources at their
disposal, as well as complementary products, countercyclical to the sale of surfing
equipment. Brand recognition is an important selling point in this competitive business,
achieved at considerable expense through sport personality endorsements and other
promotional campaigns.

What to expect from Outdoor Sports’ financials depends on when they are examined
during the fiscal year. At June 30, the company’s fiscal year-end, the financials should
look most favorable. Receivables, inventory, payables, and working capital borrowings
should be at seasonal lows. The firm should be cash rich, as it is about to gear up for the
next season’s production run. Property, plant and equipment should be at some
significant level commensurate with the company’s manufacturing demands, supported
by equity and long-term debt.

Sales margins bear close watching. Pricing pressures caused by intense competition can
erode them to dangerously low levels. Given the seasonality of the business, there may be
a cash flow crunch during the winter months. Overall, cash flow may be a problem if the
business is still growing rapidly, and requires outside financial resources to do so.

The potential of overproducing during the winter period for a spring sales period that fails
to live up to management’s expectations is also a significant risk.

FIN 3010 Page 2 of 4 [Dr. Irons]

 OUTDOOR SPORTS, INC.
Balance Sheet ($000s)

FY Ending June 30
2013 2014 2015
ASSETS
Current Assets
Cash $ 66 $ 9 $ 11
Accounts Receivable 123 142 127
Inventory 103 302 439
Prepaid Expenses 23 12 4
Other Current Assets 4 3 1
Total Current Assets 319 468 582

Propert, Plant & Equipment

Land, Buildings & Equipment 306 306 342
Less Accumulated Depreciation 65 82 104
Net land, Buildings & Equipment 241 224 238

Total Assets $ 560 $ 692 $ 820

LIABILITIES
Accounts Payable, Trade $ 47 $ 103 $ 126
Accounts Payable, Other 29 19 22
Accrued Expenses 0 0 0
Short-Term Debt 67 150 271
Income Tax Payable 22 0 0
Total Current Liabilities 165 272 419

Long-Term Debt 210 248 316

Total Liabilities 375 520 735

Stockholders' Equity
Capital Stock 100 100 100
Retained Earnings 85 72 (15)
Total Stockholders' Equity 185 172 85

Total Liabilities and Equity $ 560 $ 692 $ 820

FIN 3010 Page 3 of 4 [Dr. Irons]

 OUTDOOR SPORTS, INC.
Income Statement ($000s)
FY Ending June 30

2013 2014 2015

Sales (all credit) $ 916 $ 1,787 $ 2,249
Cost of Goods Sold 531 1,054 1,517
Gross Income 385 733 732

Operating Expenses 266 690 749

Depreciation Expense 11 17 22
Operating Income (EBIT) 108 26 (39)

Interest Expense 26 39 48
Income Tax Expense 29 0 0
Other Expense 17 0 0

Net Income $ 36 $ (13) $ (87)

FIN 3010 Page 4 of 4 [Dr. Irons]