As a recently hired assistant loans officer for a major bank you are tasked with assisting the loans officer in determining what to do when a $45 million dollar loan to a company called Hobby Horse Ltd. come up for renewal at the end of the month. You know that the Company was founded in 1990. It consists of a chain of discount stores that sell materials for crafts & hobbies. Last year they had a poor holiday season and as a result suffered a loss. Hobby Horse management has recently cancelled construction on any new stores and has decided to sell 15 of its existing stores.

With the financial information attached utilize financial ratios to determine potential problem areas at Hobby Horse. Additionally suggest what possible course(s) of action your Bank might take with respect to its business dealings with Hobby Horse & specifically the loan that is coming due.

Financial Highlights Net Sales (millions) EBIT (millions) Interest (millions) Taxes (24%) (millions) Net Income (millions) Earnings per Share Current Assets (millions) Net Fixed Assets (millions) Total Assets (millions) Current Liabilities (millions) Long Term Debt (millions) Stockholders Equity (millions) Number Of Stores Employees 2014 3351 -9 37 3 -49 -0.15 669 923 1592 680 236 676 240 13057 Income Statement 2014 Net Sales (millions) Cost of Goods Sold (millions) S.G.& A (millions) Depreciation (millions) EBIT (millions) Net Interest Expense (millions) Taxable Income (millions) Income Taxes (millions) Net Income (millions) 3351 1990 1211 159 -9 37 -46 3 -49 To Retained Earnings (millions) To Dividends -49 0 2013 3314 312 63 60 189 0.55 469 780 1249 365 159 725 221 11835 2012 2845 256 65 46 145 0.44 491 753 1244 348 297 599 211 9810 2011 2796 243 58 43 142 0.42 435 680 1115 302 311 502 184 9790 2010 2493 212 48 39 125 0.37 392 610 1002 276 319 407 170 9075 2009 2160 156 46 34 76 0.25 423 536 959 320 315 324 157 7825 Balance Sheet at March 31 (Millions) Assets: Current Assets Cash & Equivalents Trade Receivables Inventories Total Current Assets Non Current Assets: Property, Plant & Equipment Less: Accumulated Depreciation Net Fixed Assets Total Assets Liabilities and Shareholders Equity Current Liabilites Debt due for Repayment Trade Payables Other current Total Current Liabilities Long Term Debt Stockholders Equity Common Stock & other paid Capital Retained Earnings Total Stockholders equity Total Liabilities and Stockholders equity 31-Mar-14 31-Mar-13 14 176 479 669 72 194 203 469 1077 154 923 1592 910 130 780 1249 484 94 102 680 236 222 58 85 365 159 155 521 676 1592 155 570 725 1249