Davidson 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.

Davidson Yachts sells approximately 100 to 150 sailboats each year, ranging from 14-foot dinghies 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 Davidson. 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 Davidson 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 Davidson Yachts for 2011-2016 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 Davidson 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.

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DAVIDSON YACHTS COMPANY Comparative Balance Sheet For the Years Ended December 31 2011 2012 2013 2014 2015 2016 Cash Accounts receivable Allowance for bad debts Inventory Other current assets S 23,260 21,966 S 18,735 S 28,426 S 43,692 S 31,264 99,465 102,834 112,903 125,663 104,388 144,009 (9,304) (8,786 (8,824) 11,266 7,282) (12,506 35,009 11,894 61,792 9,024 96,774 22,903 S160,324 $185,692 S193,630 $221,713 S218,715 $282,444 262,195 282,008 299,380 368,565 405,269 498,626 Accumulated depreciation (5,984) (93,442) (122,892) (158,099) (187 227) 227 307) S356,535 $374,258 S370,118 S432,179 S436,757 S553,763 56,784 12,894 67,884 11,006 58,994 18,923 Total current assets Property and equipment Total assets Accounts payable Taxes payable Short-term loans Accrued payroll payable S 82,635 S 78,127 S 63,346 S56,256 S 40,189 S 50,544 16,132 76,962 5,279 S159,368 $150,688 S116,358 S115,656 S 98,295 S148,917 11630 10,983 59,876 11,780 37,58341,093 4 3,649 3,738 49,594 4,774 14,083 56,980 4,598 Total current liabilities Long-term debt Equity 158,173 172,388 179,490 214,997 229,471262,258 38,994 51,182 74,270 101,526 108,991 142,588 Total liabilities and equity $356,535 $374,258 S370,118 S432,179 S436,757 $553,763 DAVIDSON YACHTS COMPANY Comparative Statement of Income and Operating Cash Flow For the Years Ended December 31 2011 2012 2013 2014 2015 2016 Sales Returns and allowances Cost of sales Gross margin Depreciation expense Interest expense Salaries and wages Accounting and legal Administration expense Other expense S767,580 S724,878 $777,480 $929,478 $764,610 S948,857 38,379 35,645 40,33445,998 32,887 47,380 473,908 441,298 458,015 545,778 453,669 530,597 S255,293 S247,935 $279,131 $337,702 $278,054 S370,880 S 29,075 S 27,458 S 29,450 S 35,207 S29,128 S 40,080 18,597 19,557 20,998 21,475 24,889 28,993 81,923 73,664 77,846 95,764 92,903 101,447 9,323 11,834 3,108 11,380 79,666 75,234 0, 96,469 87,99597,441 2,630 18,927 15,763 22,903 18,93422,662 S231,195 $223,626 $234,073 $283,652 $266,957 S302,003 S 24,098 S 24,309 S 45,058 S 54,050 S 11,097 S 68,877 9,3048,786 Total expense Net income Cash flow from operations (adjustments to net income) S 27,458 S 29,450 S 35,207 S 29,128 S 40,080 (3,887) (10,031) (10,318) 17,291 (34,397) (21,775) 5,008) (6,092) 8,890 (37,780) Decrease (increase) in other current assets 1,000) 3,870 (1,982) (7,917) 3,980) (8,680) (34,330(702) (17361) 50,622 S 16,425 S 29,009 S 70,163 $ 41,128 S 83,422 Depreciation Decrease (increase) in receivables Decrease (increase) in inventory Increase (decrease) in current liabilities