Rapps Company Case Study
Rapps Company
Rapps Company is a cut and sew apparel manufacturer. Rapps is located in a southern state where it operates out of two manufacturing plants in two cities approximately 30 miles apart. The company manufactures all kinds of apparel ranging from shorts to down-filled hunting coats. Hunting apparel currently comprises approximately 60% of the company’s sales, though this is expected to change with a large new order from the United States Army. The Company was founded and is co-owned by two brothers, who have been in the business for over 40 years each.
The brothers initially started the business with $5,000 each, and through additional equity contributions and retained earnings have grown the company to where it is today. The brothers are located at the separate manufacturing plants. One brother handles primarily marketing and employee issues, while the other handles financial, accounting and non-employee management issues. Besides the brothers, who are effectively the CEO and President, the company consists of a controller and a marketing manager. The remaining employees are plant managers and plant labor. The marketing manager has a secretary and is responsible for marketing the company’s products to vendors. Most of the marketing is done through personal relationships at trade shows. Currently Wal-Mart is the Company’s largest customer and accounts for over 57% of the Company’s sales. However, a contract with the United States Army to provide uniforms for the Iraqi army is expected to substantially increase sales in the future.
Both brothers are in their early 60’s and are beginning to think about getting out of the business. They have approached you to analyze their company, make recommendations for improvement, and ultimately help them arrive at a fair value should they decide to sell the company.
Attached are the financial statements for the years ended 2011 and 2010. Using these financial statements and any other assumptions provided below, make your best effort to do the following:
Financial Statement Analysis: Using the sheet provided, calculate all the financial ratios for Rapps Company. More importantly, compare the results with the industry averages and provide an explanation for significant differences.
Pro-Forma Financial Statements and Cash Budget: Using the sheet provided and the assumptions below, prepare a pro-forma balance sheet, pro-forma income statement, and cash budget for Rapps Company for 2012.
Pro-Forma Assumptions
Consider