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Abel Athletics Company’s Report for Stakeholders

This is first annual report of the company after its successful initial public offering of its shares. The company was overwhelmed by the response shown by the subscribers. The IPO was oversubscribed and the company had to resort to pro-rata basis of allotment of shares.

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Divisional Structure

This was highly successful financial year of the company when first time revenue reached the figure almost touching $9 million. The company is catering seven different markets as each market has distinct high demand of one of its seven products. Accordingly the company has created seven divisions of its operative production and sales on the basis products that has high market in that division. Besides the leading product in each division, the other products also have market of varying level in these divisions. Each division is independent in its operational decision making though the over policies and procedures are controlled by company’s central office under the guidance of our esteemed Chairman. Besides the above departmentalization of operations, certain departments like human resources and finances division are centralized to meet the HR needs and financial operations of all the seven division and the company as a whole.

Risks and Uncertainties

There are a number of potential risks and uncertainties which could have a material impact on the company’s long term performance. Much of the company’s products of athletic equipment and apparel are technologically advanced or employ technologically advanced processes in their manufacture. In most cases these products are subject to continuous improvement as new technology is developed. The company is therefore exposed to the risk that if it does not keep up with the changes in the market place its products will no longer be competitive. This is both a threat and an opportunity since Abel Athletics can gain business as well as lose it. The company’s strategy to meet this risk is to invest significantly in research and development to maintain or achieve leadership positions in those markets which offer sufficient added value to justify the long term investment required.

Within certain divisions, the company derives a significant proportion of revenue from sales to major customers. The failure of any such customer to honor its debts could materially impact the financial results of the company. The company manages this risk at many levels. Each division has a credit committee that regularly monitors its exposure. The Audit committee receives a report every six months that details all significant credit limits, amounts due and amount overdue and the relevant action taken. As at December 31, 2006, no single outstanding balance exceeded 2% of the company’s total outstanding.

Financial Review

Abel Athletics performed very well during the year 2006. Revenue increased to $8.9 million. Gross profit, ‘that pays for all the other costs of running the company s well as providing net profits to owners’(Gene Siciliano, p121)1, were $5.2 million and that was 58.2% of sales, much higher than industry average of 55%. Operating profits of the company during the year were 40.5% of sales and again crossed the limits of industry average of 35%. EBIT was $3.63 million and after finance expenses and taxes the income available to stakeholders was $2.37 million.

We set a target of 22% for the pre tax return on assets (ROA), but the company achieved 23.1% ROA beating once again the industry average of 21.5%. Similarly return on equity investment this time showed a whopping 132% against the industry average on 125%. The company is utilizing the investments of stockholders in a fashion that bring in multiple growths in their wealth.

The company is facing some problems with short term liquidity, ‘that refers to its ability to meet short- term obligations’ (Bernstein and John A Wild, p 113)2, though its current ratio of 1.45: 1 and quick ratio 0.33:1 is still better than industry standards. The company hopes to improve further upon the liquidity position in next financial year. We are pleased to declare a dividend of $0.24 per share. It may be noted with appreciation the stock price as of December 21 2006 was $ 6.25 and it is hoped that market value will rise further. The company has declared the dividend at par with its earning per share that is also $0.24 per share.

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Credit worthiness

Credit worthiness is the company’s ability to raise borrowed capital. This depends a lot on its repayment abilities. In this respect our company may face slight difficulties because of two factors. First is its lower interest coverage ratio than industry average. This coverage was 14.55 times for the year 2006 as against the industry average of 25.5 times. Secondly liquidity wise the company is not very comfortable. Its current ratio is much lower than the standard 2:1, though it is better than industry average. On credit- worthiness front the most important aspect is the present composition of resources of funds to finance the assets of the company. The company is depending heavily upon borrowed capital. The company is highly geared as its debt ratio is 82.5% as against the industry average of 50%. Though shareholders has also the advantage of ‘trading in equity’ under such circumstances, but the company’s directors are seriously analyzing the situation to attain a normal capital gearing position in order to raise its credit worthiness.

Competitive position

The company operates in highly competitive market. Abel Athletics has invested significantly in research and development to improve its produce in order to improve its competitive status in the market. The company has also risen the collection period to 36.52 days (though still better than industry average of 40 days) in order to provide extra facility to its customers. In this regard the suppliers have supported the company well. The company’s inventory turnover of 0.50 much higher than industry average of 0.40 is also helping the company in keeping in check its COGS to maintain company’s competitiveness.

Compliance with applicable regulations

The company is subject to broad range of laws, regulations and standards in each of jurisdiction in which it operates. On financial reporting front the company has strengthen its internal controls in order to facilitate the compliances with Sarbanes- Oxley act. The audit committee takes review of the controls on quarterly basis. The management has set up a committee to monitor the other compliances of SEC, compliance of quality specification regulations under different states and countries, and environmental health and safety compliances as reported under its corporate responsibility section of the report.

References

  1. Gene Siciliano, Finance for Non- Financial Managers, McGraw Hill Professional, 2003, page 121
  2. Bernstein and John A Wild, Analysis of Financial statements, McGraw Hill Professional, p 113

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StudyCorgi. (2021, October 23). Abel Athletics Company’s Report for Stakeholders. Retrieved from https://studycorgi.com/abel-athletics-companys-report-for-stakeholders/

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StudyCorgi. (2021, October 23). Abel Athletics Company’s Report for Stakeholders. https://studycorgi.com/abel-athletics-companys-report-for-stakeholders/

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"Abel Athletics Company’s Report for Stakeholders." StudyCorgi, 23 Oct. 2021, studycorgi.com/abel-athletics-companys-report-for-stakeholders/.

1. StudyCorgi. "Abel Athletics Company’s Report for Stakeholders." October 23, 2021. https://studycorgi.com/abel-athletics-companys-report-for-stakeholders/.


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StudyCorgi. "Abel Athletics Company’s Report for Stakeholders." October 23, 2021. https://studycorgi.com/abel-athletics-companys-report-for-stakeholders/.

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StudyCorgi. 2021. "Abel Athletics Company’s Report for Stakeholders." October 23, 2021. https://studycorgi.com/abel-athletics-companys-report-for-stakeholders/.

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StudyCorgi. (2021) 'Abel Athletics Company’s Report for Stakeholders'. 23 October.

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