Business Valuation Refer to the information in Problem 20-51 for the Davidson Yachts Company.
Required 1. What is the valuation of Davidson Yachts Company using the book value of equity method? 2. 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.
3. What is the valuation of Davidson Yachts Company using the mulitples-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.
4. Compare and discuss the three valuations. Which of the methods would you use? Why
Problem 20-51~~~~~~~~~~~~~~~~~~~~~~~~~
Business Analysis; Spreadsheet Application 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 100 to 150 sailboats each year, ranging from 14-foot dinghies to 20-foot sailboats. Their sales prices range from $2,000 to more than $10,000. 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. 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.
Required Evaluate the liquidity and profitability of Davidson Yachts using selected financial ratios. Assess the company’s overall profitability, liquidity, and desirability as an investment. Use a spreadsheet to improve the speed and accuracy of your analysis.
