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Burchetts Green had enjoyed the bank training course, but it was good to be starting his first real job in the corporate lending group.

Burchetts Green had enjoyed the bank training course, but it was good to be starting his first real job in the corporate lending group. Earlier that morning the boss had handed him a set of financial statements for The Hobby Horse Company, Inc. (HH). “Hobby Horse,” she said, “has a $45 million loan from us due at the end of September, and it is likely to ask us to roll it over. The company seems to have run into some rough weather recently, and I have asked Furze Platt to go down there this afternoon and see what is happening. It might do you good to go along with her. Before you go, take a look at these financial statements and see what you think the problems are. Here’s a chance for you to use some of that stuff they taught you in the training course.”

TABLE 4.10 Financial highlights for The Hobby Horse Company, Inc., year ending March 31

Mr. Green was familiar with the HH story. Founded in 1990, it had rapidly built up a chain of discount stores selling materials for crafts and hobbies. However, last year a number of new store open- ings coinciding with a poor Christmas season had pushed the com- pany into loss. Management had halted all new construction and put 15 of its existing stores up for sale.

Mr. Green decided to start with the 6-year summary of HH’s balance sheet and income statement (Table 4.10). Then he turned to examine in more detail the latest position (Tables 4.11 and 4.12).

What appear to be the problem areas in HH? Do the financial ratios suggest questions that Ms. Platt and Mr. Green need to address?

financial highlights for year ending march 31

2014

2013

2012

2011

2010

2009

Net Sales

3351

3314

2845

2796

2493

2160

EBIT

-9

312

256

243

212

156

Interest

37

63

65

58

48

46

Taxes

3

60

46

43

39

34

net profit

-49

189

145

142

125

76

earnings per share

-0.15

0.55

0.44

0.42

0.37

0.25

Current Assets

669

469

491

435

392

423

Net Fixed Assets

923

780

753

680

610

536

Total Assets

1592

1249

1244

1115

1002

959

Current Liabilities

680

365

348

302

276

320

Long-term Debt

236

159

297

311

319

315

Stockholders Equity

676

725

599

502

407

324

Number of Stores

240

221

211

184

170

157

Employees

13057

11835

9810

9790

9075

7825

Income Statement ending march 31 2014

Net Sales

3351

cost of goods sold

1990

selling, general, and administrative expenses

1211

Depreciation Expense

159

(EBIT) earnings before interest and taxes

-9

Net interest expense

37

Taxable income

-46

income taxes

3

Net income

-49

   allocation of net income

   Addition to to retained earnings

-49

dividends

0

Consolidated balance sheet

Assets

Mar.31,2014

Mar.31,2013

Current assets

cash and marketable securities

14

72

Receivables

176

194

Inventory

479

203

Total Current Assets

669

469

Fixed assets

Property, plant and equipment

1077

910

Less accumulated depreciation

154

130

   Net fixed assets

923

780

Total Assets

1592

1249

Liablities and shareholders equity

Mar.31,2014

Mar.31,2013

Current liabilities

Debt due for repayment

484

222

Accounts Payable

94

58

Other Current Liabilities

102

85

Total current liabilities

680

365

Long-term debt

236

159

Stockholders equity

Common stock and other paid-in capital

155

155

Retained earnings

521

570

total stockholders equity

676

725

total liabilities and stockholders equity

1592

1249

Top Answer

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