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    Business Strategy in Releasing the Annual Stockholders Report

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    Abel Athletics is preparing to release its first Annual Stockholder Report since the company's recent initial public offering (IPO). The accounting department has already prepared and provided the financial statements and ratios (see below) for the most recent year. Now all the division managers are meeting to help create the written analysis portions for the annual report keeping in mind all the stakeholders who will be reading this information. (i.e., shareholders, regulators, investors, security analysts, credit rating agencies, etc.) Using what you know about Abel Athletics from the scenario above, the financial documents, and details from your previous tasks, create Abel Athletics' first Annual Stockholder Report for its' stakeholders.

    Provide as much detailed analysis as possible to your shareholders for each of the following areas, keeping in mind how the users of this information are likely to use it:
    1. Summarize the nature of the firm's business and its business strategy
    2. Assess the internal and external risk factors for the firm
    3. Provide an analysis of the financial condition for the firm
    4. Evaluate the firm's credit worthiness
    5. Discuss the competitive position of the firm
    6. Summarize the financial and accounting control procedures in place to ensure compliance with applicable regulatory agencies
    7. Instructor Comments:
    8. Please use the Financial Statements and Ratios posted below.

    Phase 2 Task 1: Ratio Analysis
    Key Financial Data for Abel Athletics

    Stock Price (as of 12/31/08) $34.75
    Free Cash Flow/Share $2.00
    Dividend/Share (DPS): Dividends/shares outstanding $1.35
    Book Value/Share: Shareholders Equity/Shares Outstanding $1.00

    Abel Athletics
    Income Statement
    For the year ending December 31, 2008

    Revenue
    Net Sales $50,000,000
    COGS (not including depreciation) $20,900,600
    Gross Profit $29,099,400

    Expenses
    SG&A $6,926,284
    Depreciation Expense $1,945,742
    Total Operating Expenses $8,872,026

    Income Before Interest & Taxes $20,277,374
    Interest Expense $1,389,815
    Income Before Taxes $18,887,559
    Income Tax Expense $5,651,268
    Net Income $13,236,291

    Shares Outstanding 10,143,301
    Earnings Per Share (EPS) $1.30

    Dividends $13,693,456

    Abel Athletics
    Balance Sheet
    As of December 31, 2008

    ASSETS

    Cash $7,432,455
    Accounts Receivable $5,003,336
    Inventories $41,694,463
    Total Current Assets $54,130,254

    Property, Plant & Equipment $3,474,539
    less Accumulated Depreciation $617,078
    Net Property, Plant, and Equipment $2,857,461

    Total Assets $56,987,715

    LIABILITIES & SHAREHOLDER'S EQUITY

    Accounts Payable $2,334,890
    Accrued Liabilities $2,690,683
    Interest Payable $13,898,154
    Income Taxes Payable $5,003,336
    Dividends Payable $13,342,228
    Total Current Liabilities $37,269,291

    Long-term debt $9,728,708
    Total Liabilities $46,997,999

    Total Shareholders equity $9,989,715

    Total Liabilities and shareholders equity $56,987,714

    Key Ratios:

    * Liquidity Ratios Industry Avg

    Current Ratio: Current Assets/Current Liabilities 1.45 1.25
    Quick Ratio: (Current Assets-Inventory)/Current Liabilities 0.33 0.22
    Net Working Capital Ratio: Net Working Capital/Total Assets 29.6% 25.2%

    * Profitability Ratios
    Return on Assets: Earnings/Total Assets 23.2% 21.5%
    Return on Equity: Earnings/Equity 132.5% 125%
    Net Profit Margin: Earnings/Sales 26.5% 25%
    Operating Profit Margin: Operating Profits/Sales 40.6% 35%
    Gross Profit Margin: Sales-COGS/Sales 58.2% 55%

    * Activity Analysis Ratios

    Asset Turnover Ratio: Sales/Total Assets 0.88 0.95
    Fixed Asset Turnover Ratio: Sales/Net Fixed Assets 17.5 15.5
    Equity Ratio (Proprietary Ratio): Shareholders Equity/Total Assets 0.18 0.15
    Average Collection Period: AR/(Annual Sales/365) 37 40
    Average Payment Period: AP/((70%*COGS/365)) 58.25 25
    Accounts Receivable Turnover Ratio: 365/Avg Collection Period 10.0 8.8
    Inventory Turnover Ratio: COGS/Inventory 0.5 0.4
    Average Age of Inventory 365/Inventory Turnover 728.1 675.2

    * Capital Structure and Debt Ratios

    Debt Ratio: Total Liabilities/Total Assets 82.5% 50%
    Debt to Equity Ratio: Long Term Debt/Equity 0.974 0.5
    Interest Coverage Ratio: EBIT/Interest 14.59 25.5

    * Capital Market Ratios

    Price / Earnings Ratio: Stock price/EPS 26.6 28.2
    Market to Book Ratio: Stock Price/Book Value per Share 34.75 37.5
    Dividend Yield: DPS/Stock Price 3.88% 2.50%
    Dividend Payout Ratio: DPS/EPS 103.5% 25%
    Price/FCF 17.4 15.1

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