Business Analysis Blue Water Yachts is a small company founded by two businesspeople who are friends and avid sailors. At present, they are interested in expanding the business and have asked you to review its financial statements.
Blue Water Yachts sells approximately 100 to 150 sailboats each year, ranging from 14-foot din- ghies to 20-foot sailboats. Their sales prices range from $2,000 to more than $10,000. The company has a limited inventory of boats consisting primarily of one or two boats from each of the four manufacturers that supply Blue Water. The company also sells a variety of supplies and parts and performs different types of service. Most sales are on credit.
The company operates from a large building that has offices, storage, and sales for some of the smaller sailboats. The larger sailboats are kept in a fenced area adjacent to the main building, and an ample parking area is nearby. This year Blue Water purchased a boat lift to haul boats. The lift has brought in revenues for boat repairs, hull painting, and related services, as well as the boat hauls.
The balance sheet and income statement for Blue Water Yachts for 2005 through 2009 and for the first eleven months of 2010 follow. The increase in net fixed assets in the recent two years is due to improvements in the building, paving of the parking area, and the purchase of the lift.
The company obtains its debt financing from two sources: a small savings and loan for its short- term funds, and a larger commercial bank, also for short-term loans, but principally for long-term financing. The terms of the loan agreement with the bank include a restriction that its current ratio must remain higher than 1.5.
Required: Evaluate the liquidity and profitability of Blue Water Yachts using selected financial ratios. Assess the company's overall profitability, liquidity, and desirability as an investment. Use a spreadsheet to improve the speed and accuracy of your analysis.
BLUE WATER YACHTS COMPANY
Comparative Balance Sheet For the Years Ended December 31,
2010 2005 2006 2007 2008 2009 (11 months)
Cash $ 23,260 $ 21,966 $ 18,735 $ 28,426 $ 43,692 $ 31,264
Accounts receivable 99,465 102,834 112,903 125,663 104,388 142,009
Allowance for bad debts (9,304) (8,786) (8,824) (11,266) (7,282) (12,506)
Inventory 35,009 56,784 61,792 67,884 58,994 95,774
Other current assets 11,894 12,894 9,024 11,006 18,923 22,903
Total current assets $160,324 $185,692 $193,630 $221,713 $218,715 $279,444 Property and equipment 262,195 282,008 299,380 368,565 405,269 498,626
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Accounts payable
|
82,635
|
78,127
|
63,346
|
56,256
|
40,189
|
49,544
|
|
Taxes payable
|
11,630
|
10,983
|
11,780
|
14,083
|
3,738
|
15,632
|
|
Short-term loans
|
59,876
|
56,980
|
37,583
|
41,093
|
49,594
|
76,962
|
|
Accrued payroll payable
|
5,227
|
4,598
|
3,649
|
4,224
|
4,774
|
4,779
|
|
Total current liabilities
|
$159,368
|
$150,688
|
$116,358
|
$115,656
|
$98,295
|
$146,917
|
|
Long-term debt
|
158,173
|
172,388
|
179,490
|
214,997
|
229,471
|
262,258
|
|
Equity
|
38,994
|
51,182
|
74,270
|
101,526
|
108,991
|
142,588
|
|
Total liabilities and equity
|
$356,535
|
$374,258
|
$370,118
|
$432,179
|
$436,757
|
$551,763
|
|
Accumulated depreciation
|
65,984)
|
(93,442)
|
(122,892)
|
(158,099)
|
(187,227)
|
(226,307)
|
|
Total assets
|
$356,53
|
$374,258
|
$370,118
|
$432,179
|
$436,757
|
$551,763
|
|
BLUE WATER YACHTS COMPANY
Comparative Statement of Income and Operating Cash Flow
|
|
|
For the Years Ended December 31,
|
|
2005 2006 2007 2008
|
2009
|
2010
(11 months)
|
|
Sales $767,580 $724,878 $777,480 $929,478
|
$764,610
|
$938,857
|
|
Returns and allowances 38,379 35,645 40,334 45,998
|
32,887
|
46,380
|
|
Cost of sales 473,908 441,298 458,015 545,778
|
453,669
|
530,597
|
|
Gross margin $255,293 $247,935 $279,131 $337,702
|
$278,054
|
$361,880
|
|
Depreciation expense $ 29,075 $27,458 $ 29,450 $ 35,208
|
$ 29,128
|
$ 35,563
|
|
Interest expense 18,597 19,557 20,998 21,475
|
24,889
|
28,993
|
|
Salaries and wages 81,923 73,664 77,846 95,764
|
92,903
|
99,447
|
|
Accounting and legal 9,304 8,786 9,323 11,834
|
13,108
|
11,380
|
|
Administration expense 79,666 75,234 80,693 96,469
|
87,995
|
97,441
|
|
Other expense 12,630 18,927 15,763 22,903
|
18,934
|
22,662
|
|
Total expense $231,195 $223,626 $234,073 $283,653
|
$266,957
|
$295,486
|
|
Net income $ 24,098 $ 24,309 $ 45,058 $ 54,049
|
$ 11,097
|
$ 66,394
|
|
Cash flow from operations
Depreciation $ 27,458 $ 29,450 $ 35,208
|
$ 29,128
|
$ 35,563
|
|
Decrease (increase) in receivables (3,887) (10,031) (10,318)
|
17,291
|
(32,397)
|
|
Decrease (increase) in inventory (21,775) (5,008) (6,092)
Decrease (increase) in other current
assets (1,000) 3,870 (1,982)
|
8,890
(7,917)
|
(36,780)
(3,980)
|
|
Increase (decrease) in current
|
|
|
liabilities (8,680) (34,330) (702) (17,361) 48,622
$ 16,425 $ 29,009 $ 70,163 $ 41,128 $ 77,422