You, plus four to five members of the audit firm, KP Maverick Kings, were asked by one of the Audit Partners to do an analysis on the company, Hillsburg Hardware that had issued an IPO.

Hillsburg Hardware was recently audited by Price Water Melon Carrot Chartered Accountants. The annual reports including the audit financial statements are enclosed.

The Senior Partner of KP Maverick Kings informed you, that their client’s name is Mr. Bull Baite, a billionaire.

The Partner calculated several key ratios which are also enclosed.

The Partner emphasized to you and your team, that he needs a comprehensive analysis of the ratios and gave you the following request in detail:

[see company financials below]

1. What major conclusions can be drawn from this information about the company’s future?
2. Outline FIVE (5) additional pieces of information, as well as the REASON FOR EACH additional information, that would be helpful in your assessment of this company’s financial condition.
3. Based on the ratios analyzed, outline THREE (3) aspects of the company that you believe should receive special emphasis in the audit.

Transcribed Image Text:

BALANCE SHEET DATA: Current assets Total assets Current liabilities Long-term notes payable Total stockholders equity INCOME STATEMENT DATA: Net sales Cost of sales Gross profit Earnings before income taxes Net income Cash provided by operating activities Per common share data: Net income Cash dividends per share Common shares outstanding Hillsburg Hardware Company Statement of Cash Flows (in thousands) 2011 $ 51,027 61,367 13,216 24,120 22,463 $ 143,086 103,241 39,845 5,681 3,934 4,910 $ 0.79 $ 0.38 5,000 2010 $ 49,895 60.791 12,350 26,520 20,429 27.85% 9.30% 26.49% $ 131,226 94,876 36,350 4,659 3,194 4,146 $ 0.64 $ 0.38 5,000 KEY OPERATING RESULTS AND FINANCIAL POSITION RATIOS: Gross profit (%) Return on assets (%) Return on common equity (%) 27.70% 7.73% 23.55% 2009 $ 49,157 59,696 12,173 26,938 19,135 $ 122,685 88,724 33,961 3,351 2,279 2,655 $ 0.46 $ 0.38 5,000 27.68% 5.72% 17.69% 2008 $ 47,689 57,441 12,166 25,432 18,756 $ 120,221 88,112 32,109 3,124 2,142 1,811 $ $ 0.43 5,000 26.71% 5.73% 18.10% 2007 $ 46,504 51,580 9.628 25,223 15,764 $117,115 85,663 31,452 1,450 994 1,232 $ 0.22 $ 4,500 26.86% 2.86% 9.50% Ratio 1. Current ratio 2. Quick ratio 3. Times interest earned 4. Accounts receivable turnover 5. Days to collect receivables 6. Inventory turnover 7. Days to sell inventory 8. Net sales divided by tangible assets 9. Profit margin 10. Return on assets 11. Return on equity 12. Earnings per share 2011 2.08 .97 3.50 4.20 86.90 2.03 179.80 .68 .13 .09 .05 $4.30 2010 2009 2.51 1.82 4.10 4.10 2.26 1.34 3.20 5.50 66.36 89.02 1.84 2.68 198.37 136.19 .64 .14 .09 .06 $4.26 .73 .16 .12 .10 $4.49 2008 2.43 1.76 5.30 5.40 67.59 3.34 109.28 .69 .15 .10 .10 $4.26 2007 2.50 1.64 7.10 5.60 65.18 3.36 108.63 .67 .14 .09 .11 $4.14 BALANCE SHEET DATA: Current assets Total assets Current liabilities Long-term notes payable Total stockholders equity INCOME STATEMENT DATA: Net sales Cost of sales Gross profit Earnings before income taxes Net income Cash provided by operating activities Per common share data: Net income Cash dividends per share Common shares outstanding Hillsburg Hardware Company Statement of Cash Flows (in thousands) 2011 $ 51,027 61,367 13,216 24,120 22,463 $ 143,086 103,241 39,845 5,681 3,934 4,910 $ 0.79 $ 0.38 5,000 2010 $ 49,895 60.791 12,350 26,520 20,429 27.85% 9.30% 26.49% $ 131,226 94,876 36,350 4,659 3,194 4,146 $ 0.64 $ 0.38 5,000 KEY OPERATING RESULTS AND FINANCIAL POSITION RATIOS: Gross profit (%) Return on assets (%) Return on common equity (%) 27.70% 7.73% 23.55% 2009 $ 49,157 59,696 12,173 26,938 19,135 $ 122,685 88,724 33,961 3,351 2,279 2,655 $ 0.46 $ 0.38 5,000 27.68% 5.72% 17.69% 2008 $ 47,689 57,441 12,166 25,432 18,756 $ 120,221 88,112 32,109 3,124 2,142 1,811 $ $ 0.43 5,000 26.71% 5.73% 18.10% 2007 $ 46,504 51,580 9.628 25,223 15,764 $117,115 85,663 31,452 1,450 994 1,232 $ 0.22 $ 4,500 26.86% 2.86% 9.50% Ratio 1. Current ratio 2. Quick ratio 3. Times interest earned 4. Accounts receivable turnover 5. Days to collect receivables 6. Inventory turnover 7. Days to sell inventory 8. Net sales divided by tangible assets 9. Profit margin 10. Return on assets 11. Return on equity 12. Earnings per share 2011 2.08 .97 3.50 4.20 86.90 2.03 179.80 .68 .13 .09 .05 $4.30 2010 2009 2.51 1.82 4.10 4.10 2.26 1.34 3.20 5.50 66.36 89.02 1.84 2.68 198.37 136.19 .64 .14 .09 .06 $4.26 .73 .16 .12 .10 $4.49 2008 2.43 1.76 5.30 5.40 67.59 3.34 109.28 .69 .15 .10 .10 $4.26 2007 2.50 1.64 7.10 5.60 65.18 3.36 108.63 .67 .14 .09 .11 $4.14

Answer rating: 100% (QA)

A Conclusions that can be drawn from this information about the companys future are There is a noteworthy trend in Current ratio and quick ratio that points towards the liquidity problems that a compa... View the full answer