You have just been hired as a loan officer at Westmount Bank. Your supervisor has given you a file containing a request from Hill Company, a manufacturer of computer components, for a $2,150,000 five-year loan. Financial statement data on the company for the past two years are given below: HILL COMPANY Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Temporary investments Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Shareholders' Equity Liabilities: Current liabilities. Bonds payable, 10 % Total liabilities Shareholders' equity: Preferred shares, 20,000, $3.90 no par value Common shares, 50,000 Retained earnings Total shareholders equity Total liabilities and shareholders' equity $ 258,000 $ 323,600 0 81,000 729,000 486,000 1,053,000 648,000 64,500 48,000 2,104,500 1,584,000 2,479,500 2,383,500 $ 4,584,000 $ 3,967,500 $ 1,062,480 $ 736,500 964,000 2,026,480 525,000 1,650,000 382,520 2,557,520 795,000 1,531,500 525,000 1,650,000 261,000 2,436,000 $ 4,584,000 $ 3,967,500 Sales (all on account) Cost of goods sold Gross margin HILL COMPANY Comparative Income Statement and Reconciliation of Retained Earnings. This Year Last Year $ 4,087,500 $ 3,270,000 3,270,000 2,593,500 Selling and administrative expenses Operating income Interest expense Net income before taxes Income taxes (30%) Net income Dividends paid: Preferred shares Common shares Total dividends paid Net income retained Retained earnings, beginning of year Comparative Income Statement and Reconciliation of Retained Earnings 817,500 676,500 412,500. 409,500 405,000 267,000 96,400 79,500 308,600 187,500 92,580 56,250 216,020 131,250 37,500 37,500 57,000 28,500 94,500 66,000 121,520 65,250 261,000 195,750 This Year $ 4,087,500 3,270,000 Last Year $ 3,270,000 Sales (all on account) Cost of goods sold Gross margin Selling and administrative expenses Operating income Interest expense Net income before taxes Income taxes (30%) Net income Dividends paid: Preferred shares Common shares Total dividends paid Net income retained Retained earnings, beginning of year Retained earnings, end of year 2,593,500 817,500 676,500 412,500 409,500 405,000 267,000 96,400 79,500 308,600 187,500 92,580 56,250 216,020 131,250 37,500 37,500 57,000 28,500 94,500 66,000 121,520 65,250 261,000 195,750 382,520 $ 261,000 Pat Smith, who just three years ago was appointed president of Hill Company, admits that the company has been inconsistent in its performance over the past several years. But Smith argues that the company has its costs under control and is now experiencing strong sales growth, as evidenced by the more than 25% Increase in sales over the past year. Smith also argues that investors have recognized the Improving situation at Hill Company, as shown by the jump in the price of its common shares from $15 per share last year to $23 per share this year. Smith believes that with strong leadership and with the modernized equipment that the $2,150,000 loan will permit 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 Hill Company's industry: Current ratio Acid-test ratio Average collection period Average sale period. Return on assets. Debt-to-equity ratio Times interest earned ratio Price-earnings ratio. Required: 2.30 1.20 31 days 60 days 9.50 % 0.65 5.7 10 1. For both this year and last year, present the balance sheet in common-size format. (Round your answers to 1 decimal place.) Assets Current assets: Cash Temporary investments Accounts receivable, net Inventory Prepaid expenses HILL COMPANY Comparative Balance Sheet This Year Last Year % % Total current assets 0.0 0.0 Plant and equipment, net Total assets 0.0 % 0.0 % Liabilities and Shareholders' Equity Liabilities: Current liabilities % % Bonds payable, 10% Total liabilities 0.0 0.0 Shareholders' equity: Preferred shares, 20,000, $2.40 no par value. Common shares, 50,000 Retained earnings Total shareholders' equity 0 Total liabilities and shareholders' equity 0.0 % 0.0 % 2. For both this year and last year, present the income statement in common-size format down through net income. (Round your answers to 1 decimal place.) HILL COMPANY Comparative Income Statement This Year Last Year % % Sales Cost of goods sold Gross margin 0.0 0.0 Selling and administrative expenses Operating income 0.0 0.0 Interest expense Net income before taxes. 0.0 0.0 Income taxes (30%) Net income 0.0 % 0.0 %