eBook Comparison with Industry Averages Print tem Heartland Inc. is a medium-size company that has been in business for 20 years. The industry has become very competitive in the last few years, and Heartland has decided that it must grow if it is going to survive. It has approached the bank for a sizable five-year loan, and the bank has requested Heartland's most recent financial statements as part of the loan package. The industry in which Heartland operates consists of approximately 20 companies relatively equal in size. The trade association to which all of the competitors belong publishes an annual survey of the industry, including industry averages for selected ratios for the competitors. All companies voluntarily submit their statements to the association for this purpose. Heartland's controller is aware that the bank has access to this survey and is very concerned about how the company fared this past year compared with the rest of the industry. The ratios included in the publication and the averages for the past year are as follows: Ratio Current ratio Industry Average 1.25 Acid-test (quick) ratio 0.71 Accounts receivable turnover 39.02 times Inventory turnover 28.98 times Debt-to-equity ratio 0.5 Times interest earned i 8.62 times Return on sales 6.55% Asset turnover 1.99 times Return on assets 12.83% 17.7% Return on common stockholders' equity The financial statements to be submitted to the bank in connection with the loan follow. Heartland Inc. Statement of Income and Retained Earnings For the Year Ended December 31, 2017 (thousands omitted) Sales revenue $542,825 Cost of goods sold (435,710) Gross profit $107,115 Selling, general, and administrative expenses $(65,800) Loss on sales of securities (210) Income before interest and taxes $41,105 Interest expense (9,290) Income before taxes $31,815 Income tax expense (12,726) Net income $19,089 Retained earnings, January 1, 2017 58,035 $77,124 Dividends paid on common stock (11,724) Retained earnings, December 31, 2017 $65,400 Assets Current assets: Heartland Inc. Comparative Statements of Financial Position (thousands omitted) December December 31, 2017 31, 2016 Cash $1,205 $745 Marketable securities 1,165 2,230 Accounts receivable, net of allowances 15,620 12,290 Inventories 12,690 15,785 Prepaid items 395 460 Total current assets $31,075 $31,510 Long-term investments $390 $330 Property, plant, and equipment: Land $31,950 $31,950 Buildings and equipment, net of accumulated depreciation 215,945 205,935 Total property, plant, and equipment $247,895 $237,885 Total assets $279,360 $269,725 Liabilities and Stockholders' Equity Current liabilities: Short-term notes Accounts payable Salaries and wages payable Income taxes payable Total current liabilities Long-term bonds payable Stockholders' equity: $8,715 $12,815 20,110 14,295 2,040 2,530 3,050 2,005 $33,915 $31,645 $79,975 $79,975 Common stock no nar $100 070 $100.070 4 Liabilities and Stockholders' Equity Current liabilities: Short-term notes Accounts payable Salaries and wages payable Income taxes payable $8,715 $12,815 20,110 14,295 2,040 2,530 3,050 2,005 Total current liabilities: Long-term bonds payable Stockholders' equity: $33,915 $31,645 $79,975 $79,975 Common stock, no par $100,070 $100,070 Retained earnings 65,400 58,035 Total stockholders' equity $165,470 $158,105 Total liabilities and stockholders' equity $279,360 $269,725 1. Prepare a columnar report for the controller of Heartland Inc. comparing the industry averages for the ratios published by the trade association with the comparable ratios for Heartland. For Heartland, compute the ratios as of December 31, 2017, or for the year ending December 31, 2017, whichever is appropriate. Round each ratio for Heartland, Inc. to match the rounding used for each of the industry averages presented. Heartland, Inc. Comparison to Industry Averages i For the year ending December 31, 2017 Ratio Current ratio Industry Average Heartland Inc. 1.25 Acid-test (quick) ratio 0.71 Accounts receivable turnover 39.02 times times t Inventory turnover 28.98 times times Debt-to-equity ratio 0.5 Times interest eamed 8.62 times times Return on sales 6.55% % Asset turnover 1.99 times times Return on assets 12.83% % % Return on common stockholders' equity 17.7 % 2. Briefly evaluate Heartland's ratios relative to the industry averages. Item Relative liquidity assessment Relative solvency assessment Relative profitability assessment Response Asset turnover Return on assets 1.99 times times 12.83% % % Return on common stockholders' equity 17.7 % 2. Briefly evaluate Heartland's ratios relative to the industry averages. Item Relative liquidity assessment Relative solvency assessment Relative profitability assessment 3. Based on the ratio analysis of Heartland, it is quite likely that the bank will Check My Work Search Response Email Instructor Save and Exit Submit Assign