Question: Refer to the financial statement data for Hill Company given in Problem 14-14. Refer to Problem 14-14, HILL COMPANY Comparative Balance Sheet HILL COMPANY Comparative
Refer to the financial statement data for Hill Company given in Problem 14-14.
Refer to Problem 14-14,
HILL COMPANY
Comparative Balance Sheet-1.png)
HILL COMPANY
Comparative Income Statement and Reconciliation of Retained Earnings
-2.png)
Pat Smith, who just three years ago was appointed president of Hill Company, admits that the company has been inconsistent in its performance over the past several years. But Smith argues that the company has its costs under control and is now experiencing strong sales growth, as evidenced by the more than 25% increase in sales over the past year. Smith also argues that investors have recognized the improving situation at Hill Company, as shown by the jump in the price of its common shares from $15 per share last year to $27 per share this year. Smith believes that with strong leadership and with the modernized equipment that the $2,000,000 loan will permit the company to buy, profits will be even stronger in the future. Anxious to impress your supervisor, you decide to generate all the information you can about the company. You determine that the following ratios are typical of companies in Hill Company's industry:
Current ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
Acid-test ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
Average collection period . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 days
Average sale period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 days
Return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5%
Debt-to-equity ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.65
Times interest earned ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7
Price-earnings ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Required:
1. For both this year and last year, present the balance sheet in common-size format.
2. For both this year and last year, present the income statement in common-size format down through net income.
3. Comment on the results of your analysis.
This Year Last Year Assets Current assets: Cash.. $ 240,000 $ 315,000 75,000 450,000 600,000 45,000 1,485,000 2,235,000 $3,720,000 Temporary investments . Accounts receivable, net Inventory.. Prepaid expenses. Total current assets. Plant and equipment, net.. Total assets... 675,000 975,000 60,000 1950,000 2,325,000 $4275,000 Liabilities and Shareholders' Equity Liabilities: Current liabilities . Bonds payable, 10%. Total liabilities.... Shareholders' equity: Preferred shares, 20,000, $2.40 no par value. Common shares, 50,000. Retained eamings.. Total shareholders' equity Total liabilities and shareholders' equity . $ 975,000 900,000 1,875,000 $ 690,000 750,000 1,440,000 450,000 1,500000 450,000 2,400,000 $4,275,000 450,000 1,500,000 330,000 2,280,000 $3,720,000 This Year Last Year Sales (all on account). Cost of goods sold.. Gross margin . Selling and administrative expenses.. Operating income.. Interest expense... $3,937,500 3,150,000 787,500 397,500 390,000 90,000 300,000 90,000 210,000 $3,120,000 2,475,000 645,000 390,000 255,000 75,000 180,000 54,000 126,000 Net income before taxes Income taxes (30%).. Net income... Dividends paid: Preferred shares.. Common shares . Total dividends paid.. Net income retained.. Retained earnings, beginning of year. Retained earnings, end of year 36,000 54,000 90,000 120,000 330,000 $ 450,000 36,000 27,000 63,000 63,000 267,000 $ 330,000
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