Need help on questions 5 7 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 Omaha, Nebraska in 1991 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 2004, 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, the state of Nebraska, 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 Omaha and her extensive contacts throughout the state help to bring in new business While Nebraska is primarily known as a football state, Omaha actually hosts the college baseball world serried each year in June and this generates a lot of interest in baseball (and softball as well) Jim, who had been a walk on third string offensive tackle at the University of Nebraska (the Cornhuskers in Lincoln, Nebraska), took great pride in his stores as well as his prior university affiliation He and Becky (also a University of Nebraska graduate in the mid 1980s) contributed $2,000 annually to the University of Nebraska 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 good stores such as Oshman's and the Academy, but Wal Mart and Lowe's also represented intense competition for the sporting goods dollar It appeared that every time Wal Mart opened a new store near one of its locations, Lowe's put up one of its big boxes nearby 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 In January of 2004, Becky, who served as the company's chief financial officer, walked into Jim's office and said, T've had it with the First National Bank of Omaha It is willing to renew our loan and line of credit, but the bank wants to charge us 2 percentage points 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 2 percent over prime She felt that Harrod's was a strong enough company that one 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 Figure 1 Harrod's Sporting Goods Income Statement (2001 2003) 2001 2002 2003 $4,269,871 $4,483,360 $5,021,643 2 991 821 2 981 434 3 242 120 Sales Cost of goods sold 1,278,050 865,450 1,501,926 1,779,100 1,004,846 1 175 100 Gross Profit Selling and administrative expense Operating profit Interest expense Extraordinary loss Net income before taxes Taxes 412,000 115,300 497,080 122,680 604,423 126,241 170,000 297,100 104,100 374,400 131,300 308,182 107,864 Net income $ 193,200 $ 243,100 $ 200,318 Figure 2 Harrod's Sporting Goods Cash Marketable securities Accounts receivable Inventory Total current assets Net plant and equipment Total assets Balance Sheet (2001 2003) 2001 2002 2003 $ 121,328 $ 125,789 $ 99,670 56,142 66,231 144,090 341,525 216,240 398,200 972 456 1 250 110 1 057 008 1,491,451 1,658,370 1,698,968 1 678 749 1 702 280 1811 142 $3,170,200 $3,360,650 $3,510,110 Liabilities and Stockholders' Equity Accounts payable $ 539,788 $ 576,910 601,000 Notes payable 160 540 180 090 203 070 Total current liabilities 700,328 757,000 804,070 Long term liabilities 1 265,272 1 292 995 1 372 240 Total liabilities 1,965,600 2,049,995 2,176,310 Common stock 367,400 368,000 368,000 Retained carnings 837,200 942,665 965,800 Total Stockholders' equity 1 204 600 1,310,655 1,333,800 Total liabilities and stockholders' equity $3,170,200 $3,360,650 $3,510,110 Figure 3 1 2 a b 3 a b 4 5 6 Harrod's Sporting Goods Selected Industry Ratlos Net income Sales 4 51 Net income Total Assets 5 1 Net income Sales x Sales to Total Assets 4 51 x 1 33 Net income Stockholder Equity 9 8 Net income to Total Assets (1 debt total assets) 5 1 (1 0 48) 9 8 Sales Receivables 6 75 x Sales Inventory 3 01 x Sales Fixed Assets 3 20 x C 5 Complete the financial analysis, using the revised profitability ratios for 2003 that you developed in Question 3, for Harrod's Sporting Goods using the entirety of the major ratios for all three years as follows a Profit Margin b Current Ratio Quick Ratio d Inventory Turnover e Accounts Receivable Turnover f Days Sales Outstanding g Fixed Assets Turnover h Total Assets Turnover i Debt Ratio J Times Interest Earned Ratio Note All ratios indicated by have industry comparisons 6 Harrod's has a superior sales to total assets ratio compared to the industry You already have above computed the Accounts Receivable Turnover, Inventory Turnover, and Fixed Assets Turnover ratios Write a brief one paragraph description of the results that you observe 7 Conclusion Based on your overall analysis including your work with the adjustment to the Net Income for 2003, do you think that Becky Harrod has a legitimate complaint about being charged 2 x percent over prime instead of only one percent over the prime rate (What is prime rate ) No absolutely correct answer exists to this question Use your conclusions about the analysis and your best judgement

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Need help on questions 5 7 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 Omaha, Nebraska in 1991  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 2004, 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, the state of Nebraska, 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 Omaha and her extensive contacts throughout the state help to bring in new business  While Nebraska is primarily known as a football state, Omaha actually hosts the college baseball world serried each year in June and this generates a lot of interest in baseball (and softball as well)  Jim, who had been a walk on third string offensive tackle at the University of Nebraska (the Cornhuskers in Lincoln, Nebraska), took great pride in his stores as well as his prior university affiliation  He and Becky (also a University of Nebraska graduate in the mid 1980s) contributed $2,000 annually to the University of Nebraska 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 good stores such as Oshman's and the Academy, but Wal Mart and Lowe's also represented intense competition for the sporting goods dollar  It appeared that every time Wal Mart opened a new store near one of its locations, Lowe's put up one of its  big boxes  nearby  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  In January of 2004, Becky, who served as the company's chief financial officer, walked into Jim's office and said,  T've had it with the First National Bank of Omaha  It is willing to renew our loan and line of credit, but the bank wants to charge us 2  percentage points 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 2  percent over prime  She felt that Harrod's was a strong enough company that one 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  Figure 1 Harrod's Sporting Goods Income Statement (2001 2003) 2001 2002 2003 $4,269,871 $4,483,360 $5,021,643 2 991 821 2 981 434 3 242 120 Sales Cost of goods sold 1,278,050 865,450 1,501,926 1,779,100 1,004,846 1 175 100 Gross Profit Selling and administrative expense  Operating profit  Interest expense  Extraordinary loss Net income before taxes  Taxes 412,000 115,300 497,080 122,680 604,423 126,241 170,000 297,100 104,100 374,400 131,300 308,182 107,864 Net income $ 193,200 $ 243,100 $ 200,318 Figure 2 Harrod's Sporting Goods Cash Marketable securities Accounts receivable  Inventory      Total current assets Net plant and equipment   Total assets    Balance Sheet (2001 2003) 2001 2002 2003 $ 121,328 $ 125,789 $ 99,670 56,142 66,231 144,090 341,525 216,240 398,200 972 456 1 250 110 1 057 008 1,491,451 1,658,370 1,698,968 1 678 749 1 702 280 1811 142 $3,170,200 $3,360,650 $3,510,110 Liabilities and Stockholders' Equity Accounts payable  $ 539,788 $ 576,910 601,000 Notes payable    160 540 180 090 203 070 Total current liabilities  700,328 757,000 804,070 Long term liabilities 1 265,272 1 292 995 1 372 240 Total liabilities 1,965,600 2,049,995 2,176,310 Common stock 367,400 368,000 368,000 Retained carnings 837,200 942,665 965,800 Total Stockholders' equity  1 204 600 1,310,655 1,333,800 Total liabilities and stockholders' equity  $3,170,200 $3,360,650 $3,510,110 Figure 3 1  2  a  b  3  a  b  4  5  6  Harrod's Sporting Goods Selected Industry Ratlos Net income Sales 4 51  Net income Total Assets 5 1  Net income Sales x Sales to Total Assets 4 51 x 1 33 Net income Stockholder Equity 9 8  Net income to Total Assets (1 debt total assets) 5 1   (1 0 48)   9 8  Sales Receivables 6 75 x Sales Inventory 3 01 x Sales Fixed Assets 3 20 x C  5  Complete the financial analysis, using the revised profitability ratios for 2003 that you developed in Question 3, for Harrod's Sporting Goods using the entirety of the major ratios for all three years as follows  a  Profit Margin   b  Current Ratio Quick Ratio d  Inventory Turnover   e Accounts Receivable Turnover   f  Days Sales Outstanding g  Fixed Assets Turnover   h  Total Assets Turnover i  Debt Ratio J  Times Interest Earned Ratio Note  All ratios indicated by    have industry comparisons  6  Harrod's has a superior sales to total assets ratio compared to the industry  You already have above computed the Accounts Receivable Turnover, Inventory Turnover, and Fixed Assets Turnover ratios  Write a brief one paragraph description of the results that you observe  7  Conclusion  Based on your overall analysis including your work with the adjustment to the Net Income for 2003, do you think that Becky Harrod has a legitimate complaint about being charged 2 x percent over prime instead of only one percent over the prime rate  (What is prime rate ) No absolutely correct answer exists to this question  Use your conclusions about the analysis and your best judgement

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Need help on questions 5-7 Harrod's Sporting Goods Jim Harrod knew that service, above all, was important to his customers. Jim and Becky Harrod had

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