Harrod's Sporting Goods Jim Harrod knew that service, above all, was important to his customers. Jim and Becky Harrod had opened their first store in Medicine Hat, Alberta eighteen years ago. Harrod's carried a full line of sporting goods including everything from baseball bats and uniforms to fishing gear and hunting equipment. By the year 20XX, there were twelve Harrod stores producing $5 million in total sales and generating a profit of over $200,000 per year. On the positive side, there was an increasing demand for sporting goods as leisure time activities continued to grow. Also, Western Canada, where all twelve stores were located, was experiencing moderate growth. Finally, there had been a sharp upturn in the last decade for women's sporting goods equipment. This was particularly true of softball uniforms for high school, college, and city league women's teams. Jim's wife Becky was one of the top softball players in the city of Medicine Hat, and her extensive contacts throughout the province help to bring in new business. While Alberta is primarily known as a hockey province, Medicine Hat hosts a Western Canada baseball world series each year in June and this generates a lot of interest in baseball (and softball as well). Jim, who had been an offensive tackle at the University of Alberta took great pride in his stores as well as his prior university affiliation. He and Becky (also a University of Alberta graduate) contributed $2,000 annually to the University of Alberta athletic program. The growth in the stores was the good news for Jim and Becky. The less than good news was the intense competition that they faced. Not only were they forced to compete with nationally established sporting goods stores such as Sport Chek and National Sports, but Walmart also represented intense competition for the sporting goods dollar. The national stores were extremely competitive in terms of pricing. However, Jim, Becky and their employees offered great personal service, and they hoped this would allow them to continue with their specialty niche.

Harrod's Sporting Goods Jim Harrod knew that service, above all, was important to his customers. Jim and Becky Harrod had opened their first store in Medicine Hat, Alberta eighteen years ago. Harrod's carried a full line of sporting goods including everything from baseball bats and uniforms to fishing gear and hunting equipment. By the year 20XX, there were twelve Harrod stores producing \$5 million in total sales and generating a profit of over $200,000 per year. On the positive side, there was an increasing demand for sporting goods as leisure time activities continued to grow. Also, Western Canada, where all twelve stores were located, was experiencing moderate growth. Finally, there had been a sharp upturn in the last decade for women's sporting goods equipment. This was particularly true of softball uniforms for high school, college, and city league women's teams. Jim's wife Becky was one of the top softball players in the city of Medicine Hat, and her extensive contacts throughout the province help to bring in new business. While Alberta is primarily known as a hockey province, Medicine Hat hosts a Western Canada baseball world series each year in June and this generates a lot of interest in baseball (and softball as well). Jim, who had been an offensive tackle at the University of Alberta took great pride in his stores as well as his prior university affiliation. He and Becky (also a University of Alberta graduate) contributed $2,000 annually to the University of Alberta athletic program. The growth in the stores was the good news for Jim and Becky. The less than good news was the intense competition that they faced. Not only were they forced to compete with nationally established sporting goods stores such as Sport Chek and National Sports, but Walmart also represented intense competition for the sporting goods dollar. The national stores were extremely competitive in terms of pricing. However, Jim, Becky and their employees offered great personal service, and they hoped this would allow them to continue with their specialty niche. company's chief financial officer, walked into Jim's office and said, "I've had it with the National Bank here in Medicine Hat. It is willing to renew our loan and line of credit, but the bank wants to charge us 21/2 percent over prime. The prime rate is the rate at which banks make loans to their most creditworthy customers. It was 4.75 percent at the time Becky had visited the bank, so that the total rate on the loan would be 7.25 percent. It was not so much the total rate that Becky objected to, as the fact that Harrod's was being asked to pay 221 percent over prime. She felt that Harrod's was a strong enough company that 1 percent over prime should be all that the bank required. Her banker told her he would review the firm's financial statements with her next week and reconsider the premium Harrod's was being asked to pay over prime, While Becky knew the bank "crunched all the numbers," she decided to do some additional financial analysis on her own. She had a bachelor's degree in finance with a 3.3 GPA. She began by examining Figures 1,2 , and 3 . The profitability ratios showd be shown for all three years. 2. Write a bricf ole-paragneh sescriptioe of amy trends than appear ba have taken place pror the three-year time period: 3. In evamining the income statcment in Figure 1. bote that there was an extrachinary low of 5170000 in 20XX. This might have poptesented uninsued loses from a fire, a lawsait senlement, etc. hin poobably does fim. Fer that etasen, the sonile freancial analyst migat add fack in the extravotinary bes to gauge the true eperating carniegs of the firm. Since it was a tax-dedactitle inem, we mas fird mulitiply by (1-tax rate) before adliae it bock in." The 13x rate was 35 percenf for the year. si70000 Extrondinary loss 65: (1-tax rate) 5110500 Aflerax addition to profits frem elimeating the exsandirary lows from set income The moec reprevernative set incorse maber for 20XX would now be: Based en the adfusted act income figure (\$310.818), reconpete the profitakility ratios for 20X cinclade parts a and b for ratios 2 and 3 . Required 4. Now with the adjutind net income nambers an part of the ration foe 20XX, whe a hrief enc-parapraph descriptive of wends that appear to have taken place wer the three-year time period (refer buck fo the data in Qoestion I for 20V and 200XW ) 5. Once again, uvity the peviued proditability matios for 20XX that you developet in Cuestios 3 , wrine a coenplete one paragrapt anatyon of the company's profitability ratios cumpated to the industry rafios (figure 3). Make sure so include asset burnever and debe io ocal assets as sapplemental moterial in your analysis. 6. Harrod's has mperior sales to ineal assets ratio concured bo the istustry. For 20XX, ecmpete ratios 3-4a, 3-5a and 3-7a as deseribod in the tex! and compare them 10 infustry data to see uhy this is so. Write a brief ono-pareyaph descriptice of the recults. Noec: for ratio 4, enly half the sales are ten creder termit