Balance Sheets 2006 2005

Assets

Cash $ 52,000 $ 57,600

Accounts receivable 402,000 351,200

Inventories 836,000 715,200

Total current assets $1,290,000 $1,124,000

Gross fixed assets 527,000 491,000

Less accumulated depreciation 166,200 146,200

Net fixed assets $ 360,800 $ 344,800

Total assets $1,650,800 $1,468,800

Liabilities and Equity

Accounts payable $ 175,200 $ 145,600

Notes payable 225,000 200,000

Accruals 140,000 136,000

Total current liabilities $ 540,200 $ 481,600

Long-term debt 424,612 323,432

Common stock (100,000 shares) 460,000 460,000

Retained earnings 225,988 203,768

Total equity $ 685,988 $ 663,768

Total liabilities and equity $1,650,800 $1,468,800

Income Statements 2006 2005

Sales $3,850,000 $3,432,000

Cost of goods sold (3,250,000) (2,864,000)

Other expenses ( 430,300) ( 340,000)

Depreciation ( 20,000) ( 18,900)

Total operating costs $3,700,300 $3,222,900

EBIT $ 149,700 $ 209,100

Interest expense ( 76,000) ( 62,500)

EBT $ 73,700 $ 146,600

Taxes (40%) ( 29,480) ( 58,640)

Net income $ 44,220 $ 87,960

EPS $0.442 $0.880

Statement of Cash Flows (2006)

Operating Activities

Net income $ 44,220

Other additions (sources o f cash)

Depreciation 20,000

Increase in accounts payable 29,600

Increase in accruals 4,000

Subtractions (uses of cash)

Increases in accounts receivable ( 50,800)

Increase in inventories (120,800)

Net cash flow from operations $( 73,780)

Long-Term Investing Activities

Investment in fixed assets $( 36,000)

Financing Activities

Increase in notes payable $ 25,000

Increase in long-term debt 101,180

Payment of cash dividends ( 22,000)

Net cash flow from financing $104,180

Net reduction in cash account $( 5,600)

Cash at beginning of year 57,600

Cash at end of year $ 52,000

Other Data 2006 2005

December 31 stock price $6.00 $8.50

Number of shares 100,000 100,000

Dividends per share $ 0.22 $0.22

Lease payments $40,000 $40,000

Ratio Industry Average 2006

Current 2.7x

Quick 1.0x

Inventory turnover 6.0x

Days sales outstanding (DSO) 32.0 days

Fixed assets turnover 10.7x

Total assets turnover 2.6x

Debt ratio 50.0%

TIE 2.5x

Fixed charge coverage 2.1x

Net profit margin 3.5%

ROA 9.1 %

ROE 18.2%

Price/earnings 14.2x

Market/book 1.4x

1.Begin by reviewing briefly what balance sheets and income statements are. Then give an overview of the statement of cash flows. Explain that some data (net income, depreciation, and dividends) come fro m the income statement, while the other items reflect differences between balance sheet accounts and thus show changes in those accounts between the two dates.

2. Compute HHCs current and quick ratios , and then compare them with industry (cross - sectional analysis) and its past (Trend analysis). You must interpret results.

3. Compute all the ratios to evaluate its asset management, and then compare them with industry (cross - sectional analysis) and its past (Trend analysis). You must interpret results.

4. Compute all the ra tios to evaluate its debt management, and then compare them with industry (cross - sectional analysis) and its past (Trend analysis). You must interpret results.

Compute all the ratios to evaluate its profitability, and then compare them with indus try (cross - sectional analysis) and its past (Trend analysis). You must interpret results.