You have just been hired as a loan officer at Fairfield State Bank. Your supervisor has given you a file containing a request from Hedrick Company, a manufacturer of auto components, for a $1,000,000 five-year loan. Financial statement data on the company for the last two years are given below:

Hedrick Company
Comparative Balance Sheet
	This Year		Last Year
Assets
Current assets:
Cash	$	300,000	$	419,000
Marketable securities		0		104,000
Accounts receivable, net		893,000		597,000
Inventory		1,350,000		790,000
Prepaid expenses		82,000		61,000
Total current assets		2,625,000		1,971,000
Plant and equipment, net		3,497,200		3,310,400
Total assets	$	6,122,200	$	5,281,400
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	1,320,000	$	810,000
Bonds payable, 10%		1,260,000		1,180,000
Total liabilities		2,580,000		1,990,000
Stockholders' equity:
Preferred stock, 8%, $30 par value		600,000		600,000
Common stock, $40 par value		2,000,000		2,000,000
Retained earnings		942,200		691,400
Total stockholders' equity		3,542,200		3,291,400
Total liabilities and stockholders' equity	$	6,122,200	$	5,281,400

Hedrick Company
Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales (all on account)	$	5,330,000	$	4,320,000
Cost of goods sold		4,160,000		3,100,000
Gross margin		1,170,000		1,220,000
Selling and administrative expenses		520,000		510,000
Net operating income		650,000		710,000
Interest expense		126,000		118,000
Net income before taxes		524,000		592,000
Income taxes (30%)		157,200		177,600
Net income		366,800		414,400
Dividends paid:
Preferred stock		48,000		48,000
Common stock		68,000		34,000
Total dividends paid		116,000		82,000
Net income retained		250,800		332,400
Retained earnings, beginning of year		691,400		359,000
Retained earnings, end of year	$	942,200	$	691,400

Marva Rossen, who just two years ago was appointed president of Hedrick Company, admits that the company has been inconsistent in its performance over the past several years. But Rossen argues that the company has its costs under control and is now experiencing strong sales growth, as evidenced by the more than 22% increase in sales over the last year. Rossen also argues that investors have recognized the improving situation at Hedrick Company, as shown by the jump in the price of its common stock from $32 per share last year to $48 per share this year. Rossen believes that with strong leadership and with the modernized equipment that the $1,000,000 loan will enable the company to buy, profits will be even stronger in the future.

Anxious to impress your supervisor, you decide to generate all the information you can about the company. You determine that the following ratios are typical of companies in Hedricks industry:

Current ratio	2.3
Acid-test ratio	1.2
Average collection period	31	days
Average sale period	60	days
Return on assets	9.5	%
Debt-to-equity ratio	0.65
Times interest earned	5.7
Price-earnings ratio	10

Required:

1.	You decide first to assess the rate of return that the company is generating. Compute the following for both this year and last year:

a.	The return on total assets. (Total assets at the beginning of last year were $4,330,000.) (Round your answers to 1 decimal place.)

	This year	Last year
Return on total assets	%	%

b.	The return on common stockholders equity. (Stockholders' equity at the beginning of last year totaled $5,149,707. There has been no change in preferred or common stock over the last two years.)(Round your intermediate calculations to whole numbers and final answer to 1 decimal place)

	This year	Last year
Return on common stockholders' equity	%	%

c.	Is the companys financial leverage positive or negative?

This year	(Click to select) Positive Negative
Last year	(Click to select) Positive Negative

2.	You decide next to assess the well-being of the common stockholders. For both this year and last year, compute:

a.	The earnings per share. (Round your answers to 2 decimal places.)

	This year	Last year
Earnings per share	$	$

b.	The dividend yield ratio for common stock. (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place.)

	This year	Last year
Dividend yield ratio	%	%

c.	The dividend payout ratio for common stock. (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place.)

	This year	Last year
Dividend payout ratio	%	%

d.	The price-earnings ratio. (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place.)

	This year	Last year
Price-earnings ratio	times	times

e.	The book value per share of common stock. (Round your answers to 2 decimal places.)

	This year	Last year
Book value per share	$	$

f.	The gross margin percentage. (Round your answers to 1 decimal place.)

	This year	Last year
Gross margin percentage	%	%

3.	You decide, finally, to assess creditor ratios to determine both short-term and long-term debt paying ability. For both this year and last year, compute:

a.	Working capital.

	This year	Last year
Working capital	$	$

b.	The current ratio. (Round your answers to 2 decimal places.)

	This year	Last year
Current ratio

c.	The acid-test ratio. (Round your answers to 2 decimal places.)

	This year	Last year
Acid-test ratio

d.	The average collection period. (The accounts receivable at the beginning of last year totaled $521,000.) (Use 365 days in a year. Round your intermediate calculations to 2 decimal places and final answers to the nearest whole number.)

	This year	Last year
Average collection period	days	days

e.	The average sale period. (The inventory at the beginning of last year totaled $560,000.) (Use 365 days in a year.Round your intermediate calculations to 2 decimal places and final answers to the nearest whole number.)

	This year	Last year
Average sale period	days	days

f.	The debt-to-equity ratio. (Round your answers to 2 decimal places.)

	This year	Last year
Debt-to-equity ratio

g.	The times interest earned. (Round your answers to 1 decimal place.)

	This year	Last year
Times interest earned