Milestone 1

Milestone 1 - Chester, Inc. Your Name Subject and Section Date of Submission Professor’s Name Overview of Chester, Inc. Chester, Inc., a prominent textile-apparel clothing industry entity, competes with multinational brands like Columbia Sportswear Company and Under Armour, Inc. With a market driven by a focus on health and fitness, the company offers a diverse product line, including clothing, shoes, and accessories. Accordingly, despite being situated in a highly competitive market, the company's success is contingent upon its adaptability and innovation in response to changing consumer preferences and market dynamics. In line with this, the following report is designed to furnish Chester Inc.'s board of directors with a comprehensive analysis of the company's financial statements for the years ending December 31, 2013, to 2015. Ultimately, this report will cover the various financial statements to shed light on Chester Inc.'s financial status and trajectory over the years, as well as strategic recommendations for improving the company's financial performance and other areas of concern. Financial Statement Preparation and Analysis Income Statement The financial reports of Chester Inc. show that over the three years ending December 31 (2013, 2014, and 2015), its financial performance has exhibited a considerable degree of volatility. For instance, revenue derived from sales peaked in 2013 at $307,716,148 and dipped to $271,839,067 in 2014 before partially rebounding to $288,876,206 in 2015. Accordingly, this is perhaps due to a marked decrease in net sales from 2013 to 2014, followed by a modest recovery for the last accounting period. The cost of goods sold (COGS) also presented a similar pattern, with a significant reduction in 2014 relative to 2013, which indicates cost-saving measures or a change in the company’s sales mix. Balance Sheet Aside from the Income Statement, the analysis of Chester Inc.'s balance sheet shows an overall increase in total assets from $50,112,096 in 2013 to $116,682,171 in 2015, which, on its face, indicates significant growth (Bei & Wijewardana, 2012). Additionally, other line items experienced a significant change. For instance, current assets more than doubled during this period, while property and equipment saw a net increase despite the sale of land and other adjustments. The company's liabilities have also increased, particularly current liabilities, which nearly tripled from 2013 to 2015, raising questions about the company’s short-term financial stability (Olayinka, 2022). Finally, the equity ratio decreased from 2013 to 2015, signifying a shift towards more debt financing, mainly since no investments were sold or purchased in 2014 and 2015. In line with the use of GAAP versus IFRS methods, it is worth noting that the revaluation of property, plant, and equipment under the latter could lead to higher asset values on Chester Inc.'s balance sheet compared to GAAP, where revaluation is generally not permitted. Statement of Cash Flows One of the positive and notable observations among these financial statements is the positive growth in terms of cash flows. Notably, the cash flows from operating activities have been positive for each year, with a significant jump in net cash used by operating activities from a negative $35,163,850 in 2014 to a positive $20,775,751 in 2015. Although several factors may cause this, this indicates improved operational efficiency or changes in working capital management. Additionally, there has been an increase in investing activities and a consistent use of cash, as evidenced by the purchase of new equipment and a storage building in 2014 and 2015. Financing activities also reflect significant cash outflows, primarily due to payments made towards long-term debt and dividends paid. However, in conducting a closer analysis between what is provided in the Income Statement, it must be noted that IFRS and GAAP differ in their classification of interest paid, received, and dividends received in the cash flow statement; under IFRS, Chester Inc. could opt to classify these items in operating or investing activities, which might alter the presentation of cash flows. Ratio Analysis Moving to the ratio analysis, the following were found upon closer scrutiny of the company's financial statements: First, the current ratio increased from 2013 to 2015, indicating an improved ability to meet short-term obligations. However, the cash ratio in 2015 is at 0.02, suggesting very low cash availability compared to current liabilities. Second, gross profit margin has decreased over the three years, indicating potential pressures on pricing or cost increases. The return on equity has also decreased, suggesting that the equity holders' return on their investment has diminished. Third, the debt-to-assets ratio of 0.52 in 2015 points towards a reliance on debt financing, which aligns with the observed increase in liabilities on the balance sheet. Before moving forward to the next section, one final note that the author of this paper would want to emphasize is that under GAAP, Chester Inc.'s inventory is valued using the FIFO method, which contrasts with IFRS that allows for both FIFO and LIFO, potentially affecting the cost of goods sold and inventory valuation. Comparative Analysis As mentioned earlier in the introduction, the competitive landscape for Chester Inc. includes industry leaders ...