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 130 to 180 sailboats each year, ranging from 15-foot dinghies to 21-foot sailboats. Their sales prices range from $2,300 to more than $10,300. 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 space 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 2014–2019 follow. The increase in net fixed assets in the recent 2 years is due to improvements in the building, paving of the parking area, and the purchase of the lift. DAVIDSON YACHTS COMPANY Comparative Balance Sheet December 31 2014 2015 2016 2017 2018 2019 Cash $ 23,560 $ 22,266 $ 19,035 $ 28,726 $ 43,992 $ 31,564 Accounts receivable 99,765 103,164 113,263 126,053 104,688 144,309 Allowance for bad debts (9,454 ) (9,236 ) (8,974 ) (11,416 ) (7,432 ) (12,806 ) Inventory 35,309 57,114 62,152 68,274 59,294 97,104 Other current assets 12,194 13,224 9,384 11,396 19,223 23,233 Total current assets $ 161,374 $ 186,532 $ 194,860 $ 223,033 $ 219,765 $ 283,404 Property and equipment 262,495 282,308 299,680 368,865 405,569 498,926 Accumulated depreciation (66,284 ) (93,742 ) (123,192 ) (158,399 ) (187,527 ) (227,607 ) Total assets $ 357,585 $ 375,098 $ 371,348 $ 433,499 $ 437,807 $ 554,723 Accounts payable $ 82,935 $ 78,457 $ 63,706 $ 56,646 $ 40,489 $ 50,874 Taxes payable 11,930 11,283 12,080 14,383 4,038 16,432 Short-term loans 60,176 57,280 37,883 41,393 49,894 77,262 Accrued payroll payable 5,527 4,898 3,949 4,524 5,074 5,579 Total current liabilities $ 160,568 $ 151,918 $ 117,618 $ 116,946 $ 99,495 $ 150,147 Long-term debt 158,473 172,688 179,790 215,297 229,771 262,558 Equity 38,544 50,492 73,940 101,256 108,541 142,018 Total liabilities and equity $ 357,585 $ 375,098 $ 371,348 $ 433,499 $ 437,807 $ 554,723 YACHTS COMPANY Comparative Statement of Income and Operating Cash Flow For the Years Ended December 31 2014 2015 2016 2017 2018 2019 Sales $ 769,080 $ 726,378 $ 778,980 $ 930,978 766,110 950,357 Returns and allowances 38,679 35,945 40,634 46,298 33,187 47,680 Cost of sales 474,808 442,198 458,915 546,678 454,569 531,497 Gross margin $ 255,593 $ 248,235 $ 279,431 $ 338,002 $ 278,354 $ 371,180 Depreciation expense $ 29,105 $ 27,488 $ 29,480 $ 35,237 $ 29,158 $ 40,110 Interest expense 18,627 19,587 21,028 21,505 24,919 29,023 Salaries and wages 81,953 73,694 77,876 95,794 92,933 101,477 Accounting and legal 9,454 9,236 9,353 11,864 13,138 11,410 Administration expense 79,696 75,264 80,723 96,499 88,025 97,471 Other expense 12,660 18,957 15,793 22,933 18,964 22,692 Total expense $ 231,495 $ 224,226 $ 234,253 $ 283,832 $ 267,137 $ 302,183 Net income $ 24,098 $ 24,009 $ 45,178 $ 54,170 $ 11,217 $ 68,997 Cash flow from operations (adjustments to net income) Depreciation $ 27,488 $ 29,480 $ 35,237 $ 29,158 $ 40,110 Decrease (increase) in receivables (3,617 ) (10,361 ) (10,348 ) 17,381 (34,247 ) Decrease (increase) in inventory (21,805 ) (5,038 ) (6,122 ) 8,980 (37,810 ) Decrease (increase) in other current assets (1,030 ) 3,840 (2,012 ) (7,827 ) (4,010 ) Increase (decrease) in current liabilities (8,650 ) (34,300 ) (672 ) (17,451 ) 50,652 $ 16,395 $ 28,799 $ 70,253 $ 41,458 $ 83,692 The company obtains its debt financing from two sources: (1) a small savings and loan for its short-term funds and (2) 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 Davidson’s current ratio must remain higher than 1.5. What is the valuation of Davidson Yachts Company using the book value of equity method? What is the valuation of Davidson Yachts Company using the multiples-based method on earnings? Assume the industry average earnings multiple is 7. Use the median value of the most recent 3 years for earnings. What is the valuation of Davidson Yachts Company using the multiples-based method on operating cash flow? Assume the industry average multiple on operating cash flow is 5. Use the median value of the most recent 3 years for cash flow.

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 130 to 180 sailboats each year, ranging from 15-foot dinghies to 21-foot sailboats. Their sales prices range from $2,300 to more than $10,300. 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 space 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 2014–2019 follow. The increase in net fixed assets in the recent 2 years is due to improvements in the building, paving of the parking area, and the purchase of the lift. DAVIDSON YACHTS COMPANY Comparative Balance Sheet December 31 2014 2015 2016 2017 2018 2019 Cash $ 23,560 $ 22,266 $ 19,035 $ 28,726 $ 43,992 $ 31,564 Accounts receivable 99,765 103,164 113,263 126,053 104,688 144,309 Allowance for bad debts (9,454 ) (9,236 ) (8,974 ) (11,416 ) (7,432 ) (12,806 ) Inventory 35,309 57,114 62,152 68,274 59,294 97,104 Other current assets 12,194 13,224 9,384 11,396 19,223 23,233 Total current assets $ 161,374 $ 186,532 $ 194,860 $ 223,033 $ 219,765 $ 283,404 Property and equipment 262,495 282,308 299,680 368,865 405,569 498,926 Accumulated depreciation (66,284 ) (93,742 ) (123,192 ) (158,399 ) (187,527 ) (227,607 ) Total assets $ 357,585 $ 375,098 $ 371,348 $ 433,499 $ 437,807 $ 554,723 Accounts payable $ 82,935 $ 78,457 $ 63,706 $ 56,646 $ 40,489 $ 50,874 Taxes payable 11,930 11,283 12,080 14,383 4,038 16,432 Short-term loans 60,176 57,280 37,883 41,393 49,894 77,262 Accrued payroll payable 5,527 4,898 3,949 4,524 5,074 5,579 Total current liabilities $ 160,568 $ 151,918 $ 117,618 $ 116,946 $ 99,495 $ 150,147 Long-term debt 158,473 172,688 179,790 215,297 229,771 262,558 Equity 38,544 50,492 73,940 101,256 108,541 142,018 Total liabilities and equity $ 357,585 $ 375,098 $ 371,348 $ 433,499 $ 437,807 $ 554,723 YACHTS COMPANY Comparative Statement of Income and Operating Cash Flow For the Years Ended December 31 2014 2015 2016 2017 2018 2019 Sales $ 769,080 $ 726,378 $ 778,980 $ 930,978 766,110 950,357 Returns and allowances 38,679 35,945 40,634 46,298 33,187 47,680 Cost of sales 474,808 442,198 458,915 546,678 454,569 531,497 Gross margin $ 255,593 $ 248,235 $ 279,431 $ 338,002 $ 278,354 $ 371,180 Depreciation expense $ 29,105 $ 27,488 $ 29,480 $ 35,237 $ 29,158 $ 40,110 Interest expense 18,627 19,587 21,028 21,505 24,919 29,023 Salaries and wages 81,953 73,694 77,876 95,794 92,933 101,477 Accounting and legal 9,454 9,236 9,353 11,864 13,138 11,410 Administration expense 79,696 75,264 80,723 96,499 88,025 97,471 Other expense 12,660 18,957 15,793 22,933 18,964 22,692 Total expense $ 231,495 $ 224,226 $ 234,253 $ 283,832 $ 267,137 $ 302,183 Net income $ 24,098 $ 24,009 $ 45,178 $ 54,170 $ 11,217 $ 68,997 Cash flow from operations (adjustments to net income) Depreciation $ 27,488 $ 29,480 $ 35,237 $ 29,158 $ 40,110 Decrease (increase) in receivables (3,617 ) (10,361 ) (10,348 ) 17,381 (34,247 ) Decrease (increase) in inventory (21,805 ) (5,038 ) (6,122 ) 8,980 (37,810 ) Decrease (increase) in other current assets (1,030 ) 3,840 (2,012 ) (7,827 ) (4,010 ) Increase (decrease) in current liabilities (8,650 ) (34,300 ) (672 ) (17,451 ) 50,652 $ 16,395 $ 28,799 $ 70,253 $ 41,458 $ 83,692 The company obtains its debt financing from two sources: (1) a small savings and loan for its short-term funds and (2) 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 Davidson’s current ratio must remain higher than 1.5. What is the valuation of Davidson Yachts Company using the book value of equity method? What is the valuation of Davidson Yachts Company using the multiples-based method on earnings? Assume the industry average earnings multiple is 7. Use the median value of the most recent 3 years for earnings. What is the valuation of Davidson Yachts Company using the multiples-based method on operating cash flow? Assume the industry average multiple on operating cash flow is 5. Use the median value of the most recent 3 years for cash flow.

Excel Applications for Accounting Principles

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ISBN:9781111581565

Author:Gaylord N. Smith

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Chapter7: Inventory Cost Flow Assumptions (fifolifo)

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Problem 1R: Del Rio began Rio Enterprises on January 1 with 200 units of inventory. During the year, 500...

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Davidson Yachts sells approximately 130 to 180 sailboats each year, ranging from 15-foot dinghies to 21-foot sailboats. Their sales prices range from $2,300 to more than $10,300. 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 space 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 2014–2019 follow. The increase in net fixed assets in the recent 2 years is due to improvements in the building, paving of the parking area, and the purchase of the lift.

DAVIDSON YACHTS COMPANY
Comparative Balance Sheet
December 31
	2014		2015	2016		2017	2018		2019
Cash	$	23,560		$	22,266		$	19,035		$	28,726		$	43,992		$	31,564
Accounts receivable		99,765			103,164			113,263			126,053			104,688			144,309
Allowance for bad debts		(9,454	)		(9,236	)		(8,974	)		(11,416	)		(7,432	)		(12,806	)
Inventory		35,309			57,114			62,152			68,274			59,294			97,104
Other current assets		12,194			13,224			9,384			11,396			19,223			23,233
Total current assets	$	161,374		$	186,532		$	194,860		$	223,033		$	219,765		$	283,404
Property and equipment		262,495			282,308			299,680			368,865			405,569			498,926
Accumulated depreciation		(66,284	)		(93,742	)		(123,192	)		(158,399	)		(187,527	)		(227,607	)
Total assets	$	357,585		$	375,098		$	371,348		$	433,499		$	437,807		$	554,723
Accounts payable	$	82,935		$	78,457		$	63,706		$	56,646		$	40,489		$	50,874
Taxes payable		11,930			11,283			12,080			14,383			4,038			16,432
Short-term loans		60,176			57,280			37,883			41,393			49,894			77,262
Accrued payroll payable		5,527			4,898			3,949			4,524			5,074			5,579
Total current liabilities	$	160,568		$	151,918		$	117,618		$	116,946		$	99,495		$	150,147
Long-term debt		158,473			172,688			179,790			215,297			229,771			262,558
Equity		38,544			50,492			73,940			101,256			108,541			142,018
Total liabilities and equity	$	357,585		$	375,098		$	371,348		$	433,499		$	437,807		$	554,723

YACHTS COMPANY
Comparative Statement of Income and Operating Cash Flow
For the Years Ended December 31
	2014		2015	2016		2017	2018		2019
Sales	$	769,080		$	726,378		$	778,980		$	930,978			766,110			950,357
Returns and allowances		38,679			35,945			40,634			46,298			33,187			47,680
Cost of sales		474,808			442,198			458,915			546,678			454,569			531,497
Gross margin	$	255,593		$	248,235		$	279,431		$	338,002		$	278,354		$	371,180
Depreciation expense	$	29,105		$	27,488		$	29,480		$	35,237		$	29,158		$	40,110
Interest expense		18,627			19,587			21,028			21,505			24,919			29,023
Salaries and wages		81,953			73,694			77,876			95,794			92,933			101,477
Accounting and legal		9,454			9,236			9,353			11,864			13,138			11,410
Administration expense		79,696			75,264			80,723			96,499			88,025			97,471
Other expense		12,660			18,957			15,793			22,933			18,964			22,692
Total expense	$	231,495		$	224,226		$	234,253		$	283,832		$	267,137		$	302,183
Net income	$	24,098		$	24,009		$	45,178		$	54,170		$	11,217		$	68,997
Cash flow from operations (adjustments to net income)
Depreciation				$	27,488		$	29,480		$	35,237		$	29,158		$	40,110
Decrease (increase) in receivables					(3,617	)		(10,361	)		(10,348	)		17,381			(34,247	)
Decrease (increase) in inventory					(21,805	)		(5,038	)		(6,122	)		8,980			(37,810	)
Decrease (increase) in other current assets					(1,030	)		3,840			(2,012	)		(7,827	)		(4,010	)
Increase (decrease) in current liabilities					(8,650	)		(34,300	)		(672	)		(17,451	)		50,652
				$	16,395		$	28,799		$	70,253		$	41,458		$	83,692

The company obtains its debt financing from two sources: (1) a small savings and loan for its short-term funds and (2) 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 Davidson’s current ratio must remain higher than 1.5.

What is the valuation of Davidson Yachts Company using the book value of equity method?

What is the valuation of Davidson Yachts Company using the multiples-based method on earnings? Assume the industry average earnings multiple is 7. Use the median value of the most recent 3 years for earnings.

What is the valuation of Davidson Yachts Company using the multiples-based method on operating cash flow? Assume the industry average multiple on operating cash flow is 5. Use the median value of the most recent 3 years for cash flow.

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