Question

In: Finance

Consider the following financial statements for Sports and Company: Sports Team USA Net Income Statement Year...

Consider the following financial statements for Sports and

Company:

Sports Team USA

Net Income Statement

Year Ended June 30, 2013

(in thousands)

Revenue:

Broadcast rights

$26,682

Ticket sales

$1,689

Sponsorships

$242

Total revenue

$28,613

Expenses:

Salaries and benefits

$15,154

Professional services

$7,507

Insurance

$3,963

Contracted services

$19

Rent and occupancy

$367

Interest

$385

Total expenses

$27,395

Taxable Income

$1,218

Taxes (34%)

$414.12

Net Income

$803.88

16

Sports Team USA

Balance Sheet

Year Ended June 30, 2013

(in thousands)

Assets

Cash and cash equivalents

$2,737

Accounts receivable

$821

Prepaid expenses

$387

Total current assets

$3,945

Net

property and equipment

$5,924

Total assets

$9,869

Liabilities and Owner's equity

Notes payable

$2,145

Deferred compensation

$929

Other current liabilities

$382

Total current liabilities

$3,456

Long

-

term debt

$4,295

Total liabilities

$7,751

Equity

$2,118

Total liabilities and owner's equity

$9,869

Industry

average

Profit

margin

3.8%

Total asset turnover

2.1

Equity multiplier

3.2

Return on equity (ROE)

25.5%

Return on assets (ROA)

8.0%

Current

ratio

1.3x

Quick ratio

0.9x

Account receivables

turnover

52x

Average collection period

7 days

Debt ratio

69%

Debt

-

to

-

equity ratio

2.2

Times interest earned (TIE) ratio

2.8

Fixed asset turnover ratio

5.2

Net working capital

850

o

Calculate the ratios for Sports Team USA and compare them with the industry ratios.

Outline Sports Team USA’s strengths and weaknesses. Recommend at least three areas of improvement for the company.

o

Solutions

Expert Solution

Ratios:
Ratio   Formula Company Company-figure Industry - Figure Advan. / Improve Improvement Areas:
Profit margin NI/Sales 803.88/28613 0.03 0.038
total Asset T/o Sales / TA 28613/9869 2.90 2.1 ADVANTAGE
Equity multiplier Owner's Eq./TA 2118/9869 0.21 3.2
Return on Equity NI/Owner's Eq. 803.88/2118 0.38 0.255 ADVANTAGE
Return on Assets NI/TA 803.88/9869 0.08 0.08
Current Ratio CA/CL 3945/3456 1.14 1.3
Quick Ratio CA-Inv/CL (3945-0)/3456 1.14 0.9
Account Receivable T/o Sales/AR 28613/821 34.85 53
Average Collection period AR*365/Sales 821*365/28613 10.47 7 IMPROVE Company has to improve the collection of credit provided.
Debt ratio TD/TA 7751/9869 0.79 0.69
Debt to Equity ratio TD/Owner's Eq. 7751/2118 3.66 2.2 IMPROVE Company has to reduce the debt against the equity.
Times interest earned ratio Interest Exp./EBIT 385/(1218+385) 0.24 2.8
Fixed Asset T/o ratio Sales / FA 28613/5924 4.83 5.2 IMPROVE company has to improve the performance of Fixed assets.
Net working capital CA-CL 3945-3456 489.00 850 ADVANTAGE

jeff jeffy answered 1 year ago
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