MINICASE Burchetts Green had enjoyed the bank training course, but it was good to be starting his first real job in the corporate lending group. Earlier that morning the boss had handed him a set of financial statements for The Hobby Horse Company Inc. (HH). "Hobby Horse," she said, "has a 345 million loan from us due at the end of September, and it is likely to ask us to roll it over. The company seems to have run into some rough weather recently, and I have asked Furze Platt to go down there this aftemoon and see what is happening. It might do you good to go along with her. Before you go, take a look at these financial statements and see what you think the problems are. Here's a chance for you to use some of that stuff they taught you in the training course." Mr. Greea was familiar with the HH story. Founded in 1990, it had rapidly built up a chain of discount stores selling materials for crafts and hobbies. However, last year a number of new store openings coinciding with a poor Christmas season had pushed the company into loss. Management had halted all new construction and put 15 of its existing stores up for sale. Mr. Green decided to start with the 6-year summary of HH's balance sheet and income statement ( Table 4.10). Then he turned to examine in more detail the latest position (Tables 4.11 and 4.12). Table 4.10 Financial highlights for The Hobby Horse Company Inc., year ending March 31 2019 2018 2017 2016 2015 2014 Net sales 3,351 3,314 2,845 2.796 2,493 2.160 EBIT -9 312 256 243 212 156 Interest 37 63 65 58 48 46 Taxes 3 60 43 39 Net prot -49 199 145 142 125 Earnings per share -0.15 0.55 0.44 0.42 0.37 0.25 Current assets 669 469 491 435 392 422 Net fixed assets 923 780 753 680 610 536 Total assets 1,592 1,249 1.244 1,115 1,002 959 Current liabilities 680 365 348 302 276 320 Long-term debt 236 159 297 311 319 315 Stockholders' equity 676 725 599 502 407 324 Number of stores 240 221 211 184 170 157 Employees 13,057 11,835 9,810 9,790 9,075 7,825 46 Page 117 Table 4.11 Income statement for The Hobby Horse Company Inc., year ending March 31, 2019 figures in $ millions) Net sales $3,351 Cost of goods sold 1,990 Selling, general, and administrative expenses 1,211 Depreciation expense 159 Earnings before interest and taxes (EBIT) 9 Net interest expense 37 Taxable income Income taxes Net income 49 Allocation of net income Addition to retained earnings -$ 49 Dividends 0 Mar. 31, 2018 3 72 194 203 $469 Table 4.12 Consolidated balance sheet for The Hobby Horse Company Inc. (figures in $ millions) Assets Mar 31, 2019 Current assets Cash and marketable securities 3 14 Receivables 176 Inventories 479 Total current assets $ 669 Fixed assets Property, plant, and equipment 31,077 Less accumulated depreciation 154 Net fused assets $ 923 Total assets $1,592 $ Liabilities and Shareholders' Equity Mar. 31, 2019 Curreat liabilities Debt due for repayment $ 484 Accounts payable 94 Other current liabilities 102 Total current liabilities $ 680 Long-term debt $ 236 Stockholders' equity Common stock and other paid-in capital 3 155 Retained earnings 521 Total stockholders' equity 3 676 Total liabilities and stockholders' equity $1,592 3 910 130 3 780 31,249 Mar. 31, 2018 3 222 58 85 3 365 $ 159 3 3 155 570 725 $1,249 Note: Columsums subject to rounding What appear to be the problem areas in HH? Do the financial ratios suggest questions that Ms. Platt and Mr. Green need to address? Table 4.12 Consolidated balance sheet for The Hobby Horse Company Inc. (figures in $ millions) Assets Mar. 31, 2019 Mar. 31, 2018 Current assets Cash and marketable securities $ 14 $ 72 Receivables 176 194 Inventories 479 203 Total current assets $ 669 $ 469 Fixed assets Property, plant, and equipment $1,077 S 910 Less accumulated depreciation 154 130 Net fixed assets $ 923 $ 780 Total assets $1,592 $1,249 Liabilities and Shareholders' Equity Mar. 31, 2019 Mar. 31, 2018 Current liabilities Debt due for repayment $ 484 S 222 Accounts payable 94 58 Other current liabilities 102 85 Total current liabilities $ 680 S 365 Long-term debt $ 236 $ 159 Stockholders' equity Common stock and other paid-in capital $ 155 $ 155 Retained earnings 521 570 Total stockholders' equity $ 676 $ 725 Total liabilities and stockholders' equity $1,592 $1,249 Note: Column sums subject to rounding error. What appear to be the problem areas in HH? Do the financial ratios suggest questions that Ms. Platt and Mr. Green need to address? MINICASE Burchetts Green had enjoyed the bank training course, but it was good to be starting his first real job in the corporate lending group. Earlier that morning the boss had handed him a set of financial statements for The Hobby Horse Company Inc. (HH). "Hobby Horse," she said, "has a 345 million loan from us due at the end of September, and it is likely to ask us to roll it over. The company seems to have run into some rough weather recently, and I have asked Furze Platt to go down there this aftemoon and see what is happening. It might do you good to go along with her. Before you go, take a look at these financial statements and see what you think the problems are. Here's a chance for you to use some of that stuff they taught you in the training course." Mr. Greea was familiar with the HH story. Founded in 1990, it had rapidly built up a chain of discount stores selling materials for crafts and hobbies. However, last year a number of new store openings coinciding with a poor Christmas season had pushed the company into loss. Management had halted all new construction and put 15 of its existing stores up for sale. Mr. Green decided to start with the 6-year summary of HH's balance sheet and income statement ( Table 4.10). Then he turned to examine in more detail the latest position (Tables 4.11 and 4.12). Table 4.10 Financial highlights for The Hobby Horse Company Inc., year ending March 31 2019 2018 2017 2016 2015 2014 Net sales 3,351 3,314 2,845 2.796 2,493 2.160 EBIT -9 312 256 243 212 156 Interest 37 63 65 58 48 46 Taxes 3 60 43 39 Net prot -49 199 145 142 125 Earnings per share -0.15 0.55 0.44 0.42 0.37 0.25 Current assets 669 469 491 435 392 422 Net fixed assets 923 780 753 680 610 536 Total assets 1,592 1,249 1.244 1,115 1,002 959 Current liabilities 680 365 348 302 276 320 Long-term debt 236 159 297 311 319 315 Stockholders' equity 676 725 599 502 407 324 Number of stores 240 221 211 184 170 157 Employees 13,057 11,835 9,810 9,790 9,075 7,825 46 Page 117 Table 4.11 Income statement for The Hobby Horse Company Inc., year ending March 31, 2019 figures in $ millions) Net sales $3,351 Cost of goods sold 1,990 Selling, general, and administrative expenses 1,211 Depreciation expense 159 Earnings before interest and taxes (EBIT) 9 Net interest expense 37 Taxable income Income taxes Net income 49 Allocation of net income Addition to retained earnings -$ 49 Dividends 0 Mar. 31, 2018 3 72 194 203 $469 Table 4.12 Consolidated balance sheet for The Hobby Horse Company Inc. (figures in $ millions) Assets Mar 31, 2019 Current assets Cash and marketable securities 3 14 Receivables 176 Inventories 479 Total current assets $ 669 Fixed assets Property, plant, and equipment 31,077 Less accumulated depreciation 154 Net fused assets $ 923 Total assets $1,592 $ Liabilities and Shareholders' Equity Mar. 31, 2019 Curreat liabilities Debt due for repayment $ 484 Accounts payable 94 Other current liabilities 102 Total current liabilities $ 680 Long-term debt $ 236 Stockholders' equity Common stock and other paid-in capital 3 155 Retained earnings 521 Total stockholders' equity 3 676 Total liabilities and stockholders' equity $1,592 3 910 130 3 780 31,249 Mar. 31, 2018 3 222 58 85 3 365 $ 159 3 3 155 570 725 $1,249 Note: Columsums subject to rounding What appear to be the problem areas in HH? Do the financial ratios suggest questions that Ms. Platt and Mr. Green need to address? Table 4.12 Consolidated balance sheet for The Hobby Horse Company Inc. (figures in $ millions) Assets Mar. 31, 2019 Mar. 31, 2018 Current assets Cash and marketable securities $ 14 $ 72 Receivables 176 194 Inventories 479 203 Total current assets $ 669 $ 469 Fixed assets Property, plant, and equipment $1,077 S 910 Less accumulated depreciation 154 130 Net fixed assets $ 923 $ 780 Total assets $1,592 $1,249 Liabilities and Shareholders' Equity Mar. 31, 2019 Mar. 31, 2018 Current liabilities Debt due for repayment $ 484 S 222 Accounts payable 94 58 Other current liabilities 102 85 Total current liabilities $ 680 S 365 Long-term debt $ 236 $ 159 Stockholders' equity Common stock and other paid-in capital $ 155 $ 155 Retained earnings 521 570 Total stockholders' equity $ 676 $ 725 Total liabilities and stockholders' equity $1,592 $1,249 Note: Column sums subject to rounding error. What appear to be the problem areas in HH? Do the financial ratios suggest questions that Ms. Platt and Mr. Green need to address