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 $2,040,000 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% $ 244,800 $ 316,400 0 76,600 689,400 459,600 995,800 61,200 612,800 45,800 1,991,200 1,511,400 2,366,200 2,274,600 $4,357,400 $3,786,000 $1,000,808 $ 702,400 914,400 762,000 Total liabilities 1,915,208 1,464,400 Shareholders' equity: Preferred shares, 20,000, $2.80 no par value Common shares, 50,000 470,000 470,000 1,540,000 1,540,000 Retained earnings 432,192 311,600 Total shareholders equity 2,442,192 2,321,600 Total liabilities and shareholders' equity $4,357,400 $3,786,000 Sales (all on account) Cost of goods sold Gross margin HILL COMPANY Comparative Income Statement and Reconciliation of Retained Earnings 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 This Year Last Year $3,977,500 $3,160,000 3,182,000 2,506,600 795,500 653,400 401,500 395,200 394,000 258,200 91,440 76,200 302,560 182,000 90,768 54,600 211,792 127,400 36,400 36,400 54,800 27,400 91,200 63,800 120,592 63,600 311,600 $ 432,192 $ 248,000 311,600 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 $14 per share last year to $25 per share this year. Smith believes that with strong leadership and with the modernized equipment that the $2,040,000 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 2.30 1.20 Average collection period Average sale period 31 days 60 days Return on assets 9.50% Debt-to-equity ratio 0.65 Times interest earned ratio 5.7 Price-earnings ratio 10 Required: 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 Total current assets HILL COMPANY Comparative Balance Sheet This Year Last Year % % Plant and equipment, net Total assets % Liabilities and Shareholders' Equity Liabilities: Current liabilities Bonds payable, 10% Total liabilities Shareholders' equity: Preferred shares, 20,000, $2.40 no par value. Common shares, 50,000 Retained earnings Total shareholders' equity Total liabilities and shareholders' equity do % % % % % 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.) Sales Cost of goods sold HILL COMPANY Comparative Income Statement Gross margin Selling and administrative expenses Operating income Interest expense Net income before taxes Income taxes (30%) Net income This Year Last Year % % % %