Cannondale Corporation Balance Sheet

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Cannondale CorporationBalance Sheet

• Chapter 2
• Fraser and Ormiston

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Cannondale CorporationLiabilities
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Cannondale Corp.Stockholders Equity
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Cannondale CorporationContributed Capital,
Earned Capital, Other Comprehensive Income,
Treasury Stock
Cannondale does not have any Treasury Stock.
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Cannondale Corporation, Vertical Analysis
Continued


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How has Cannondale financed its assets?

• Assets Liabilities Owners Equity
• Owned How Financed?
• Owned Financed by
• Borrowing Owners
• What percentage of Cannondales assets are
  financed with debt and what percentage are
  financed by the owners?

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Cannondale Corporation, Vertical Analysis
Continued


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Debt RatioAlso called Debt to Assets Ratio
Shows the proportion of all assets that are
financed with debt.
Rule of thumb This should not exceed 50.
Industry Average (Sporting and Athletic Goods) is
approximately 60.
Cannondales Debt Ratio 36
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Cannondale Corporation, Vertical Analysis
Continued


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Debt to Equity Ratio
The industry averages (quartiles) are .8, 1.6,
and 3.5.
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Debt to Equity Ratio

• This ratio expresses the proportion of assets
  financed by creditors to that financed by owners.
  The higher the ratio, the greater the risk being
  assumed by creditors. A lower ratio indicates
  unused borrowing capacity and the ability to
  borrow in the future.

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Debt to Equity Ratio cont

• In 1997 the ratio was .56. In 1996 it was .61.

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Debt to Equity Ratio cont

• 3 and 4. In 1997 the company had .56 in
  liabilities for each dollar of owners equity and
  in 1996 it had .61. This is a decrease of .05.

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Debt to Equity Ratio cont

• Only 25 of the companies in the industry had a
  debt to equity ratio of less than .80 or .90.

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Debt to Equity Ratio cont

• 6. There is relatively little risk in lending
  to Cannondale and the company has unused
  borrowing capacity.
• The ratio declined from 1996 to 1997
• The company is in the top 25 compared to the
  industry with regard to risk.
• The company is far below the rule of thumb of 1.0

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Liquidity Ratios

• What do we mean by liquidity?
• The ability to pay ones debts
• The ability to turn assets into cash
• We have two ratios that measure the firms ability
  to pay its debts
• the Current Ratio and
• the Quick Ratio

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CannondaleCurrent Ratio
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CannondaleCurrent Ratio

• Measures short-term liquidity, the ability of the
  firm to meet needs for cash as they arise
• 4.1 in 1997
• 4.10 in current assets for each 1.00 in current
  liabilities
• 3.2 in 1996
• 3.20 in current assets for each 1.00 in current
  liabilities

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CannondaleCurrent Ratio

• Measures short-term liquidity, the ability of the
  firm to meet needs for cash as they arise
• 2. and 3.
• 4.1 in 1997
• 4.10 in current assets for each 1.00 in current
  liabilities
• 3.2 in 1996
• 3.20 in current assets for each 1.00 in current
  liabilities

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CannondaleCurrent Ratio

• 4. Cannondales current ratio increased from 3.2
  in 96 to 4.1 in 97.
• 5. In 97, 25 of the companies in the industry
  had a current ratio of more than 3.1.
• (50 of the companies had a current ratio of
  between 3.1 and 1.3.)
• Cannondale is in the top 25 of companies in the
  industry for both years.

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CannondaleCurrent Ratio

• 6. Cannondale has excellent liquidity and should
  be able to pay its short term debt as it comes
  due.
• The company has 4.10 in current assets for each
  1 in current liabilities.
• The companys liquidity increased since last
  year.
• The company is in the best 25 of the companies
  in the industry in terms of liquidity as measured
  by the current ratio.

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CannondaleQuick Ratio or Acid Test
Another way to compute this ratio is to include
just the current assets from Cash through
Accounts Receivable in the numerator. A rule of
thumb used by some analysts is that the quick
ratio should not be less than .30 (Murray, page
83).
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CannondaleQuick Ratio or Acid Test
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CannondaleQuick Ratio or Acid Test

• Measures short term liquidity more rigorously
  than the current ratio by eliminating inventory,
  usually the least liquid current asset.
• , 3. And 4.
• 2.91 in 1997
• 2.71 in quick assets for each 1.00 in current
  liabilities
• 2.12 in 1996
• 2.12 in quick assets for each 1.00 in current
  liabilities.

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CannondaleQuick Ratio or Acid Test

• Industry averages only 25 of the companies in
  the industry had a quick ratio better (higher)
  than 1.2 in 1997
• Cannondale is in the top 25 of companies in the
  industry for both years.
• Liquidity is excellent and getting better
• Top 25 of companies in the industry
• Exceeds rule of thumb of .3 by substantial amount