USING COMMON SIZE STATEMENTS Greg’s Graphics Company owns and operates a small chain of sportswear stores located near colleges and universities. Greg’s Graphics has experienced significant growth in recent years. The following data are available for Greg’s Graphics:

Greg’s Graphics Company Comparative Statements of Income Year Ended December 31,

(In thousands) 2009 2008 2007 Sales $54,922 $42,893 $35,526 Cost of goods sold 32,936 25,682 21,721 Gross margin $21,986 $17,211 $13,805 Other income, net 397 439 421

$22,383 $17,650 $14,226 Costs and expenses:

Selling and administrative $17,857 $14,665 $12,754 Interest 1,356 863 622

$19,213 $15,528 $13,376 Income before income taxes $ 3,170 $ 2,122 $ 850 Provision for income taxes 885 746 623 Net income $ 2,285 $ 1,376 $ 227 Greg’s Graphics Company Comparative Balance Sheets

(In thousands)

December 31, ASSETS 2009 2008 2007 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 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:
. Calculate how much Greg’s Graphics’ sales, net income, and assets have grown during these three years.
. Explain how Greg’s Graphics has financed the increase in assets.
. Discuss whether Greg’s Graphics’ liquidity is adequate.
. Explain why interest expense is growing.
. If Greg’s Graphics’ sales grow by 25 percent in 2010, what would you expect net income to be?
. If Greg’s Graphics’ assets must grow by 25 percent to support the 25 percent sales increase and if 50 percent of net income is paid in dividends, how much capital must Greg’s Graphics raise?