Balance Sheet Analysis - Crocs Week 6
docx
keyboard_arrow_up
School
University Of Arizona *
*We aren’t endorsed by this school
Course
TAX
Subject
Finance
Date
Jan 9, 2024
Type
docx
Pages
7
Uploaded by CommodoreBisonMaster896
Balance Sheet Analysis
Introduction
In the ever-evolving landscape of finance, dissecting a company's financial health is paramount
for investors, stakeholders, and business analysts alike. Crocs, the globally recognized footwear
company, has undergone extensive scrutiny through a detailed financial analysis. By delving into
both horizontal and vertical balance sheet data, this examination aims to unravel the company's
performance trends, strengths, and potential red flags. This exploration provides valuable
insights into Crocs' strategic decisions, operational efficiency, and overall financial stability,
offering a comprehensive understanding of the company's position in the market.
Croc’s performance based on the horizontal (% growth) balance sheet.
Analyzing the horizontal (% growth) balance sheet of Croc’s Company provides insights into its
performance trends over the years. Let's assess the trends based on the provided data:
Accounts Receivable (61.9% Increase from 2021 to 2022):
The substantial uptick in accounts
receivable suggests that Crocs may have relaxed its credit policies or employed aggressive sales
strategies, leading to increased sales on credit. This move likely broadened the customer base
and diversified revenue streams, indicating a proactive market approach.
Total Current Liabilities (33.1% decrease from 2021 to 2022):
The rise in total current
liabilities might imply increase short-term debt or strategic investments needing immediate
funding. While it raises concerns about short-term obligations, a detailed analysis of these
liabilities is crucial to understanding their nature and impact on the company’s financial health.
The areas that are deteriorating:
Total Equity (17.3% Increase from 2021 to 2022):
The sharp increase in equity signals that
Crocs' reduced liabilities have outpaced its assets. Factors like accumulated losses, dividends, or
share buybacks might be influencing this trend. While a decrease in equity isn't inherently
negative, it necessitates meticulous evaluation to maintain a healthy balance between debt and
equity financing for sustainable growth and financial stability.
Total Assets (38.1% Increase from 2021 to 2022):
The substantial growth in total assets
underscores significant business expansion or acquisitions. Crocs seems to be investing
strategically, possibly entering new markets or diversifying its product offerings. This indicates a
forward-looking growth strategy and a commitment to long-term sustainability.
Croc’s performance based on the vertical (common size) balance sheet.
The vertical (common size) balance sheet analysis serves as a powerful tool, allowing us to
dissect Croc’s financial structure and performance. Here's a detailed assessment of the trends
based on the provided data:
Improving Areas:
Accounts Receivable (11.82% of Total Assets in 2022):
The steady decrease in accounts
receivable relative to total assets reflects Crocs' stability in credit policies. This consistent
proportion signifies effective receivables management, ensuring a reliable cash flow cycle and
financial stability. Crocs' proficiency in managing outstanding payments contributes to a
dependable revenue stream and enhanced liquidity.
Current Assets (43.1% of Total Assets in 2022):
The substantial increase in current assets
highlights Crocs' enhanced liquidity and efficient working capital management. With 43.1% of
total assets in liquid or near-liquid form, the company is well-positioned to meet short-term
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
obligations promptly. This surge indicates a robust balance between investments in current assets
and long-term growth initiatives, ensuring financial agility and stability.
Decreasing Areas:
Inventory (13.8% of Total Assets in 2022):
The declining trend in inventory as a percentage of
total assets raises concerns about Crocs' inventory turnover efficiency. A reduction from 18.7%
in 2020 to 13.8% in 2022 suggests potential challenges such as slower sales, overstocking, or
disruptions in the supply chain. Efficient inventory management is crucial for maintaining
optimal stock levels, ensuring timely deliveries, and minimizing carrying costs.
Equity (0.9% of Total Assets in 2022):
The sharp decrease in equity proportion indicates
heightened reliance on debt financing or diminished profitability. Possible reasons for this
decline could range from share buybacks, increased dividends, or financial losses. It is
imperative for Crocs to assess and address the factors contributing to this decrease, as a healthy
equity base is essential for long-term financial stability and resilience.
Croc’c Red Flags Assessing Croc’s financial health through the lens of six common red flags in financial statement
analysis provides a comprehensive understanding of the company's stability and potential risks.
Let's delve into the insights derived from this analysis:
1.
Earnings Problems: Crocs consistent profits suggest stability, but the declining equity
proportion and modest asset growth raise concerns we can indirectly infer earnings
problems if there's a consistent decrease in total assets without a corresponding increase
in earnings. A substantial decrease in equity percentage over the years (from 26.0% in
2021 to 0.9% in 2022) could indicate a significant decline in earnings.
2.
Decreased Cash Flow:
A decline in cash reserves could indicate financial strain or
inefficient cash management. Crocs must focus on generating sufficient cash from its
operations to cover expenses and investments. Efficient cash flow management is
essential for liquidity and financial flexibility.
3.
Decreased Cash Flow: The data shows a significant increase in long-term debt, with the
long-term debt percentage rising from 29.2% in 2021 to 59.6% in 2022. This suggests a
substantial increase in debt relative to equity and assets.
4.
Too Much Debt: The accounts receivable percentage has decreased from 13.39% in 2021
to 11.82% in 2022, indicating better management of receivables.
5.
Inability to Collect Receivables
: The accounts receivable percentage has decreased from
13.39% in 2021 to 11.82% in 2022, indicating better management of receivables. Early
receivables collection ensures healthy cash flow, preventing liquidity issues and
supporting ongoing operations and investments.
6.
Buildup of Inventory
: The inventory percentage has decreased from 15.7% in 2021 to
13.8% in 2022. However, observation is necessary to avoid overstocking, potential
obsolescence, and reduced cash flows. Optimizing inventory turnover is pivotal for
maintaining liquidity and sustaining healthy cash flow.
7.
Trends of Sales, Inventory, and Receivables:
the decrease in both accounts receivable
and inventory as percentages of total assets suggests potential efficiency in sales and
inventory turnover. Conversely, growing sales, swift inventory turnover, and prompt
receivables collection signify a robust operational cycle and financial health.
Summary
Analyzing Crocs financial health reveals a stable yet nuanced situation. The company's
consistent profits indicate stability, but declining equity proportions and modest asset growth
raise concerns. Operational efficiency and cost management are critical areas for improvement to
enhance profitability and sustainable growth. Effective credit policies are reflected in stable
accounts receivable percentages. Efforts to manage inventory levels are evident, but vigilance is
necessary to prevent overstocking and obsolescence, ensuring healthy cash flows. Trends
analysis showcases potential operational inefficiencies if sales decline while inventory and
receivables increase.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
In closing, Croc’s financial health necessitates a comprehensive strategy. Addressing operational
efficiency, mastering the art of cash flow management, implementing astute inventory
optimization, and embracing prudent debt management are the keystones to resilience and
growth. A proactive stance in these domains promises not just financial stability but also propels
Kroger toward sustainable growth amidst the dynamic market currents.
Reference https://mylab.pearson.com/Info/eBook.aspx?
canvas_user_id=376219&canvas_enrollment_state=active&context_parent_id=1428b65c5fcd4
26fab5d8bcb3a711a02&canvas_api_domain=uagc.instructure.com&canvas_user_login_id=JIP
OMA9645&canvas_course_id=122142&canvas_workflow_state=available&orig_context_id=b
42d442df1e47bea9dc81894089a65925e1c3e36&page=1&tool_consumer_info_product_family_
code=canvas&tool_consumer_info_version=cloud&lis_course_offering_sourcedid=558507&lis
_person_sourcedid=S1338216&bookId=9840.
Related Documents
Related Questions
Financial reporting:
Multiple Choice
O
is designed primarily to meet the needs of banks, taxing authorities, and other Governmental regulatory bodies such as the SEC.
O
is future oriented in nature, with detailed disclosures about a company's operating plans to allow investors to make accurate earnings projections.
is designed primarily for internal planning, control, and decision-making purposes.
includes detailed notes and other disclosures about a company's past performance.
arrow_forward
How does the DuPont identity framework help analysts and investors gain a deeper understanding of a company's financial performance? Provide examples of how each component (profitability, efficiency, and leverage) contributes to the overall analysis of a company's return on equity
arrow_forward
Financial performance measures are essential tools used by managers to evaluate the financialhealth of their organization. They provide an overview of the company's financialperformance, help identify areas of improvement, and support decision making.CarniTrin is a manufacturer of Carnival costumes in a highly competitive market. Thecompany's management team is seeking guidance on the use of financial performancemeasures to identify the key drivers of the company's financial performance and develop astrategy to improve it.The following data relate to the company for the year 2019: In its clothing division, the company has $4,000,000 invested in assets. After-taxoperating income from sales of clothing in 2019 is $700,000. Income for the clothingdivision has grown steadily over the last few years. The cosmetics division has $12,000,000 invested in assets and an after-tax operatingincome in 2019 of $1,700,000. The weighted-average cost of capital for CarniTrin is 10% and the 2018’s…
arrow_forward
Write a post providing us with the context for the resources of adopting innovative technologies that can lead to streamlined processes, real-time insights, and increased focus on strategic planning technological advancements in the accounting and finance profession have required finance professionals to adapt and expand their skill sets. Those who can adapt can support business growth and discover better career opportunities selected by identifying the field of study of accounting and finance and specifying an associated profession if relevant.Explain in two separate sections how this could be applied to the criteria of validity checklist to determine the validity of each resource.
arrow_forward
Discuss your assumptions on the key factors such as industry characteristics, firm characteristics, sales growth, profit margin, dividend policy, asset requirement, and leverage. How do these factors affect your forecasting of financial statements? And discuss why the circular reference occurs between the proforma income statement and balance sheet in your forecasting model?
arrow_forward
Financial management interacts with other departments of the firm and determines the future growth of the firm. Please discuss in short with some valid reasoning.
arrow_forward
A company reports accounting data in its financial statements. This data is used for financial analyses that provide insights into a company’s strengths, weaknesses, performance in specific areas, and trends in performance. These analyses are often used to compare a company’s performance to that of its competitors or to its past or expected future performance. Such insight helps managers and analysts improve their decision making.
Consider the following scenario:
You work as an analyst at a credit-rating agency, and you are comparing firms in the construction and engineering sector. One company in the portfolio of companies you are analyzing is a Chinese firm. This firm stands out in the ratio analysis, because the company’s financial ratios are substantially lower than identical financial ratios of the other firms in the sector. You do not dissect the results of the ratio analysis and report this firm as an under-performing company.
Which of the following statements about…
arrow_forward
You have been recognized as an expert on financial analysis. As such, you have been hired to conduct a review of a company’s latest consolidated financial statement and make recommendations to leadership based upon your findings.
arrow_forward
Financial Markets are dynamic places in creating and facilitating liquidity for businesses and entrepreneurs. In this scenario:
a- Identify and explain the five most important "sources of information" about capital and money markets.
b- Critically evaluate, why efficient distribution of financial information is so important to market participants.
arrow_forward
Question: When preparing financial statements, which involve the culmination of various accounting principles and concepts, the process is crucial in portraying a company's financial health and performance. Among the key components, the income statement and the balance sheet stand as fundamental snapshots. The income statement delineates a company's revenues, expenses, and ultimately its profitability over a specific period, employing either the accrual basis or cash basis accounting. On the other hand, the balance sheet provides an overview of a company's assets, liabilities, and shareholders' equity at a given point in time, adhering to the accounting equation where assets are equal to liabilities plus shareholders' equity. Furthermore, the matching principle necessitates that expenses be recorded in the same period as the related revenues they helped generate, facilitating a more accurate representation of the company's financial performance.
In the context of accounting…
arrow_forward
Financial performance measures are essential tools used by managers to evaluate the financial health of their organization. They provide an overview of the company's financial performance, help identify areas of improvement, and support decision making. CarniTrin is a manufacturer of Carnival costumes in a highly competitive market. The company's management team is seeking guidance on the use of financial performance measures to identify the key drivers of the company's financial performance and develop a strategy to improve it. The following data relate to the company for the year 2019: In its clothing division, the company has $4,000,000 invested in assets. After-tax operating income from sales of clothing in 2019 is $700,000. Income for the clothing division has grown steadily over the last few years. The cosmetics division has $12,000,000 invested in assets and an after-tax operating income in 2019 of $1,700,000. The weighted-average cost of capital for CarniTrin is 10% and…
arrow_forward
Recommends, with justifications, methods and tools that allow businesses to analyse financial data for strategic decision making purposes
arrow_forward
SEE MORE QUESTIONS
Recommended textbooks for you
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Related Questions
- Financial reporting: Multiple Choice O is designed primarily to meet the needs of banks, taxing authorities, and other Governmental regulatory bodies such as the SEC. O is future oriented in nature, with detailed disclosures about a company's operating plans to allow investors to make accurate earnings projections. is designed primarily for internal planning, control, and decision-making purposes. includes detailed notes and other disclosures about a company's past performance.arrow_forwardHow does the DuPont identity framework help analysts and investors gain a deeper understanding of a company's financial performance? Provide examples of how each component (profitability, efficiency, and leverage) contributes to the overall analysis of a company's return on equityarrow_forwardFinancial performance measures are essential tools used by managers to evaluate the financialhealth of their organization. They provide an overview of the company's financialperformance, help identify areas of improvement, and support decision making.CarniTrin is a manufacturer of Carnival costumes in a highly competitive market. Thecompany's management team is seeking guidance on the use of financial performancemeasures to identify the key drivers of the company's financial performance and develop astrategy to improve it.The following data relate to the company for the year 2019: In its clothing division, the company has $4,000,000 invested in assets. After-taxoperating income from sales of clothing in 2019 is $700,000. Income for the clothingdivision has grown steadily over the last few years. The cosmetics division has $12,000,000 invested in assets and an after-tax operatingincome in 2019 of $1,700,000. The weighted-average cost of capital for CarniTrin is 10% and the 2018’s…arrow_forward
- Write a post providing us with the context for the resources of adopting innovative technologies that can lead to streamlined processes, real-time insights, and increased focus on strategic planning technological advancements in the accounting and finance profession have required finance professionals to adapt and expand their skill sets. Those who can adapt can support business growth and discover better career opportunities selected by identifying the field of study of accounting and finance and specifying an associated profession if relevant.Explain in two separate sections how this could be applied to the criteria of validity checklist to determine the validity of each resource.arrow_forwardDiscuss your assumptions on the key factors such as industry characteristics, firm characteristics, sales growth, profit margin, dividend policy, asset requirement, and leverage. How do these factors affect your forecasting of financial statements? And discuss why the circular reference occurs between the proforma income statement and balance sheet in your forecasting model?arrow_forwardFinancial management interacts with other departments of the firm and determines the future growth of the firm. Please discuss in short with some valid reasoning.arrow_forward
- A company reports accounting data in its financial statements. This data is used for financial analyses that provide insights into a company’s strengths, weaknesses, performance in specific areas, and trends in performance. These analyses are often used to compare a company’s performance to that of its competitors or to its past or expected future performance. Such insight helps managers and analysts improve their decision making. Consider the following scenario: You work as an analyst at a credit-rating agency, and you are comparing firms in the construction and engineering sector. One company in the portfolio of companies you are analyzing is a Chinese firm. This firm stands out in the ratio analysis, because the company’s financial ratios are substantially lower than identical financial ratios of the other firms in the sector. You do not dissect the results of the ratio analysis and report this firm as an under-performing company. Which of the following statements about…arrow_forwardYou have been recognized as an expert on financial analysis. As such, you have been hired to conduct a review of a company’s latest consolidated financial statement and make recommendations to leadership based upon your findings.arrow_forwardFinancial Markets are dynamic places in creating and facilitating liquidity for businesses and entrepreneurs. In this scenario: a- Identify and explain the five most important "sources of information" about capital and money markets. b- Critically evaluate, why efficient distribution of financial information is so important to market participants.arrow_forward
- Question: When preparing financial statements, which involve the culmination of various accounting principles and concepts, the process is crucial in portraying a company's financial health and performance. Among the key components, the income statement and the balance sheet stand as fundamental snapshots. The income statement delineates a company's revenues, expenses, and ultimately its profitability over a specific period, employing either the accrual basis or cash basis accounting. On the other hand, the balance sheet provides an overview of a company's assets, liabilities, and shareholders' equity at a given point in time, adhering to the accounting equation where assets are equal to liabilities plus shareholders' equity. Furthermore, the matching principle necessitates that expenses be recorded in the same period as the related revenues they helped generate, facilitating a more accurate representation of the company's financial performance. In the context of accounting…arrow_forwardFinancial performance measures are essential tools used by managers to evaluate the financial health of their organization. They provide an overview of the company's financial performance, help identify areas of improvement, and support decision making. CarniTrin is a manufacturer of Carnival costumes in a highly competitive market. The company's management team is seeking guidance on the use of financial performance measures to identify the key drivers of the company's financial performance and develop a strategy to improve it. The following data relate to the company for the year 2019: In its clothing division, the company has $4,000,000 invested in assets. After-tax operating income from sales of clothing in 2019 is $700,000. Income for the clothing division has grown steadily over the last few years. The cosmetics division has $12,000,000 invested in assets and an after-tax operating income in 2019 of $1,700,000. The weighted-average cost of capital for CarniTrin is 10% and…arrow_forwardRecommends, with justifications, methods and tools that allow businesses to analyse financial data for strategic decision making purposesarrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning