In its annual report, WRM Athletic Supply, Inc. includes the following five-year financial summary:

  

      

  

    Requirements  

  

1. Analyze the company’s financial summary for the fiscal years 2016–2020 to decide whether to invest in the common stock of WRM. Include the following sections in your analysis, and fully explain your final decision.

  

a. Trend analysis for net sales and net income (use 2016 as the base year). 

  

b. Profitability analysis.

  

c. Evaluation of the ability to sell merchandise inventory (WRM uses the LIFO method).

  

d. Evaluation of the ability to pay debts.

  

e. Evaluation of dividends.

 

Transcribed Image Text:

WRM ATHLETIC SUPPLY, INC. Five-Year Financial Summary (Partial; adapted) (Dollar amounts in thousands except per share data) 2020 2019 2018 2017 2016 2015 Net Sales $ 290,000 $ 215,000 $ 194,000 $ 165,000 $ 139,000 Net Sales Increase 35% 11% 18% 19% 17% Domestic Comparative Store Sales Increase 5% 7% 5% 8% 10% Other Income Net 2,050 1,810 1,790 1,660 1,300 Cost of Goods Sold 218,660 163,400 150,350 129,360 110,227 Selling and Administrative Expenses 41,236 36,356 31,679 27,408 22,516 Interest: Interest Expense (1,010) (1,360) (1,370) (1,060) (870) Interest Income 120 160 165 225 155 Income Tax Expense 4,430 3,830 3,690 3,380 2,760 Net Income 26,834 12,024 8,866 5,677 4,082 Per Share of Common Stock: Net Income 1.80 1.50 1.40 1.20 0.98 Dividends 0.40 0.38 0.34 0.30 0.26 Financial Position Current Assets, Excluding Merchandise Inventory $ 30,400 $ 27,500 $ 26,200 $ 24,900 $ 21,700 Merchandise Inventory at LIFO Cost 24,200 22,500 21,400 19,900 17,100 $ 16,400 Property, Plant, and Equipment, Net 51,100 45,600 40,700 35,200 25,900 Total Assets 105,700 95,600 88,300 80,000 64,700 Current Liabilities 32,200 27,100 28,700 25,800 16,700 Long-term Debt 22,600 21,700 17,100 18,300 12,600 Stockholders' Equity 50,900 46,800 42,500 35,900 35,400 Financial Ratios Acid-Test Ratio 0.9 1.0 0.9 1.0 1.3 Rate of Return on Total Assets 27.7% 14.6% 12.2% 9.3% 8.3% Rate of Return on Common Stockholders' Equity 54.9% 26.9% 22.6% 15.9% 15.4% WRM ATHLETIC SUPPLY, INC. Five-Year Financial Summary (Partial; adapted) (Dollar amounts in thousands except per share data) 2020 2019 2018 2017 2016 2015 Net Sales $ 290,000 $ 215,000 $ 194,000 $ 165,000 $ 139,000 Net Sales Increase 35% 11% 18% 19% 17% Domestic Comparative Store Sales Increase 5% 7% 5% 8% 10% Other Income Net 2,050 1,810 1,790 1,660 1,300 Cost of Goods Sold 218,660 163,400 150,350 129,360 110,227 Selling and Administrative Expenses 41,236 36,356 31,679 27,408 22,516 Interest: Interest Expense (1,010) (1,360) (1,370) (1,060) (870) Interest Income 120 160 165 225 155 Income Tax Expense 4,430 3,830 3,690 3,380 2,760 Net Income 26,834 12,024 8,866 5,677 4,082 Per Share of Common Stock: Net Income 1.80 1.50 1.40 1.20 0.98 Dividends 0.40 0.38 0.34 0.30 0.26 Financial Position Current Assets, Excluding Merchandise Inventory $ 30,400 $ 27,500 $ 26,200 $ 24,900 $ 21,700 Merchandise Inventory at LIFO Cost 24,200 22,500 21,400 19,900 17,100 $ 16,400 Property, Plant, and Equipment, Net 51,100 45,600 40,700 35,200 25,900 Total Assets 105,700 95,600 88,300 80,000 64,700 Current Liabilities 32,200 27,100 28,700 25,800 16,700 Long-term Debt 22,600 21,700 17,100 18,300 12,600 Stockholders' Equity 50,900 46,800 42,500 35,900 35,400 Financial Ratios Acid-Test Ratio 0.9 1.0 0.9 1.0 1.3 Rate of Return on Total Assets 27.7% 14.6% 12.2% 9.3% 8.3% Rate of Return on Common Stockholders' Equity 54.9% 26.9% 22.6% 15.9% 15.4%

Answer rating: 100% (QA)

Net Sales YEAR 2020 2019 2018 2017 2016 SALES 290000 215000 194000 165000 139000 Net Income Year 202... View the full answer