1. Problem 12-88B (Algorithmic) Using Common Size Statements

   Groff Graphics Company owns and operates a small chain of sportswear stores located near colleges and universities. Groff has experienced significant growth in recent years. The following data are available for Groff:

   Groff Graphics Company
   Consolidated Income Statement
   (In thousands)
   	Year ended December 31,
   		2019		2018		2017
   Sales		$55,722		$42,893		$35,526
   Cost of goods sold		32,936		25,682		21,721
   Gross margin		$22,786		$17,211		$13,805
   Other income, net		397		439		421
   		$23,183		$17,650		$14,226
   Costs and Expenses:
   Selling and administrative		$17,857		$14,665		$12,754
   Interest		1,356		863		622
   Total costs and expenses		$19,213		$15,528		$13,376
   Income before income taxes		$ 3,970		$ 2,122		$ 850
   Provision for income taxes		885		746		623
   Net income		$ 3,085		$ 1,376		$ 227

   Groff Graphics Company
   Consolidated Balance Sheets
   (In thousands)
   	December 31,
   ASSETS		2019		2018		2017
   Current assets:
   Cash		$372		$301		$245
   Accounts receivable		4,798		3,546		3,369
   Inventories		5,673		4,521		3,389
   Total current assets		$10,843		$8,368		$7,003
   Property, plant and equipment (net)		4,912		3,541		2,937
   Other assets		592		592		552
   Total assets		$16,347		$12,501		$10,492
   LIABILITIES AND STOCKHOLDERS' EQUITY
   Current liabilities:
   Short-term notes payable		$4,314		$1,731		$463
   Accounts payable		1,256		987		783
   Total current liabilities		$5,570		$2,718		$1,246
   Long-term debt		3,241		3,234		3,266
   Total liabilities		$8,811		$5,952		$4,512
   Common stock & additional paid-in capital		$4,367		$4,598		$4,725
   Retained earnings		3,169		1,951		1,255
   Total stockholders' equity		$7,536		$6,549		$5,980
   Total liabilities and stockholders' equity		$16,347		$12,501		$10,492

   Required:

   1. Calculate how much Groff's sales, net income, and assets have grown during these 3 years. Round your answers to the nearest whole percent.

   Sales	%
   Net income	%
   Assets	%

   2. Explain how Groff has financed the increase in assets.

   Groff financed its asset growth through

   • an increase in retained earnings and a decrease in current liabilities.
   • an increase in retained earnings and an increase in current liabilities.
   • an increase in retained earnings and an increase in expenses.

   3. Conceptual Connection: Is Groff's liquidity is adequate?

   • Yes
   • No

   4. Conceptual Connection: Why is interest expense growing?

   • Because retained earnings is increasing.
   • Because short-term notes payable is increasing.
   • Because accounts payable is increasing.

   5. If Groff's sales grow by 25% in 2020, what would you expect net income to be? Round your answer to the nearest dollar. Use your answer in the following calculations. $

   6. If Groff's assets must grow by 25% to support the 25% sales increase and if 50% of net income is paid in dividends, how much capital must Groff raise in 2020? Round your answer to the nearest cent. $