PREPARING COMMON SIZE STATEMENTS The financial statements for Matt’s Hats, Inc., appear below and on the next page.

Matt’s Hats, Inc.

Income Statement Year Ended December 31,

(In thousands, except per share data) 2009 2008 2007 Revenues $4,102,721 $3,652,412 $3,178,569 Costs and expenses:

Cost of goods sold $2,256,236 $2,234,985 $1,952,123 Selling and administrative 927,412 653,986 598,236 Interest 23,974 32,596 31,853 Other expenses (income) 1,925 2,254 (102)

Total costs and expenses $3,209,547 $2,923,821 $2,582,110 Income before income taxes $ 893,174 $ 728,591 $ 596,459 Income taxes 247,692 183,456 163,524 Net income $ 645,482 $ 545,135 $ 432,935 Matt’s Hats, Inc.

Balance Sheets

(In thousands)

ASSETS December 31, 2009 2008 Current assets:

Cash and equivalents $ 301,695 $ 269,648 Accounts receivable, less allowance for doubtful accounts of $20,568 and $18,322 670,469 604,236 Inventories 601,396 469,582 Deferred income taxes 23,415 24,397 Prepaid expenses 43,624 36,478 Total current assets $1,640,599 $1,404,341 Property, plant, and equipment $ 583,152 $ 501,239 Less accumulated depreciation 206,452 148,231 Net property, plant, and equipment $ 376,700 $ 353,008 Goodwill 162,325 127,695 Other assets 29,158 23,598 Total assets $2,208,782 $1,908,642 ABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities:
Current portion of long-term debt $ 63,169 $ 5,665 Notes payable 112,596 110,423 Accounts payable 128,696 139,364 Accrued liabilities 143,874 133,569 Income taxes payable 23,541 38,972 Total current liabilities $ 471,876 $ 427,993 Long-term debt 16,254 83,456 Noncurrent deferred income taxes 33,489 31,238 Other noncurrent liabilities 46,685 27,434 Commitments and contingencies — —
Redeemable preferred stock 200 200 Total liabilities $ 568,504 $ 570,321 Shareholders’ equity:
Common stock at stated value:
Class A convertible—27,723 and 25,832 shares outstanding $ 164 $ 175 Class B—49,756 and 47,652 shares outstanding 3,152 3,120 Capital in excess of stated value 110,596 96,546 Treasury stock (common at cost) (8,741) (7,859)
Retained earnings 1,535,107 1,246,339 Total stockholders’ equity $1,640,278 $1,338,321 Total liabilities and stockholders’ equity $2,208,782 $1,908,642 Required:
. Prepare common income statements to be used for horizontal analysis for Matt’s Hats for 2007 to 2009.
. Indicate why Matt’s net income increased between 2007 and 2009.
. Prepare common size balance sheets to be used for vertical analysis for 2009 and 2008.
. Determine whether the proportion of dollars invested in the various categories of assets has changed significantly between 2008 and 2009.
. Determine whether the proportion of capital raised from the various liability categories and common shareholders’ equity has changed significantly between 2008 and 2009.
. Indicate how you would describe Matt’s performance and financial position?