Financial Analysis
Purpose : To help familiarize you with the financial reporting of a real company in order to further your understanding of the chapter material.
This case focuses on the financial statement analysis of Columbia Sportswear. Recall from this chapter that stakeholders use numerous ways to anatyze and so better understand the financial position and results of operations of a company. Tools such as vertical and horizontal analyses are available; in addition, financial ratios can be used to gain further insight into areas such as liquid¬ity and profitability.
Other measures include earnings per share and ratios that consider the share price of the company. Finally, nonfinancial information provides additional insights into the per¬formance and financial position of the company. We will now apply some of the analytical tools contained in the chapter. Refer to the Columbia Sportswear annual report found in Appendix A.
Requirements
1. Perform a vertical analysis on the income statements (Consolidated Statements of Operations) for all three years. Discuss your results. What benefit do you see in performing this analysis? Perform a horizontal analysis of the balance sheets (Consolidated Balance Sheets) for both years. Discuss your results. What benefit do you see in performing this analysis?
2. Look at the income statements (Consolidated Statements of Operations). Can you find the Basic EPS for each fiscal year presented? Has the Basic Earnings per Share increased or decreased each year? Why do you think the Basic EPS has been changing?
3. Determine the liquidity of Columbia Sportswear by computing the net working capital, current ratio, and quick ratio at December 31. 2012, and December 31, 2011. Has Columbia Sportswear's liquidity improved or deteriorated? Compute the return on sales and the return on equity ratio for 2012 and 2011. Use end¬ing equity balance instead of average for 2011. Has Columbia Sportswear's profitability improved or deteriorated?
4. The market price for a share of Columbia Sportswear's common stock was $53.36 on December 31, 2012. Using this price, determine the price-earnings ratio and the dividend yield at December 31, 2012 (the dividends per share can be found on the Consolidated Statements of Stockholders' Equity). What do your results mean?
Assume that the industry average PE ratio was 20 times earnings and the dividend yield was 1.8% for the industry. Evaluate your results against the industry averages.