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 $2,110,000 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 253,200 0 714,600 1,032,200 63,300 318,600 79,400 476,400 635,200 47,200 Total current assets Plant and equipment, net 2,063,300 2,438,300 1,557,600 2,343,900 Total assets $ 4,501,600 $ 3,901,500 Liabilities and Shareholders' Equity Liabilities: Current liabilities Bonds payable, 10% $ 1,020,672 949,600 $ 708,100 783,000 Total liabilities 1,970,272 1,491,100 Shareholders' equity: Preferred shares, 20,000, $2.40 no par value Common shares, 50,000 Retained earnings 505,000 1,610,000 416, 328 505,000 1,610,000 295,400 Total shareholders' equity 2,531,328 2,410,400 HILL COMPANY Comparative Income Statement and Reconciliation of Retained Earnings This Year Last Year Sales (all on account) $ 4,047,500 $ 3,230,000 Cost of goods sold 3,238,000 2,561,900 Gross margin Selling and administrative expenses 809,500 408,500 668,100 404,300 Operating income Interest expense 401,000 94,960 263,800 78,300 Net income before taxes Income taxes (308) 306, 040 91,812 185,500 55,650 Net income 214,228 129,850 Dividends paid: Preferred shares Common shares 37,100 56,200 37,100 28,100 Total dividends paid 93,300 65,200 Net income retained Retained earnings, beginning of year 120,928 295, 400 64,650 230,750 Retained earnings, end of year 416,328 $ 295,400 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 $2,110,000 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 2.30 1.20 Average sale period 31 days days 9.50 Return on assets 0.65 Debt-to-equity ratio Times interest earned ratio Price-earnings ratio 5.7 10 Last Year HILL COMPANY Comparative Balance Sheet This 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, $2.40 no par value. Common shares, 50,000 Retained earnings Total shareholders' equity Total liabilities and shareholders' equity 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 Selling and administrative expenses Operating income Interest expense Net income before taxes Income taxes (30%) Net income % % 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 $2,110,000 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 253,200 0 714,600 1,032,200 63,300 318,600 79,400 476,400 635,200 47,200 Total current assets Plant and equipment, net 2,063,300 2,438,300 1,557,600 2,343,900 Total assets $ 4,501,600 $ 3,901,500 Liabilities and Shareholders' Equity Liabilities: Current liabilities Bonds payable, 10% $ 1,020,672 949,600 $ 708,100 783,000 Total liabilities 1,970,272 1,491,100 Shareholders' equity: Preferred shares, 20,000, $2.40 no par value Common shares, 50,000 Retained earnings 505,000 1,610,000 416, 328 505,000 1,610,000 295,400 Total shareholders' equity 2,531,328 2,410,400 HILL COMPANY Comparative Income Statement and Reconciliation of Retained Earnings This Year Last Year Sales (all on account) $ 4,047,500 $ 3,230,000 Cost of goods sold 3,238,000 2,561,900 Gross margin Selling and administrative expenses 809,500 408,500 668,100 404,300 Operating income Interest expense 401,000 94,960 263,800 78,300 Net income before taxes Income taxes (308) 306, 040 91,812 185,500 55,650 Net income 214,228 129,850 Dividends paid: Preferred shares Common shares 37,100 56,200 37,100 28,100 Total dividends paid 93,300 65,200 Net income retained Retained earnings, beginning of year 120,928 295, 400 64,650 230,750 Retained earnings, end of year 416,328 $ 295,400 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 $2,110,000 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 2.30 1.20 Average sale period 31 days days 9.50 Return on assets 0.65 Debt-to-equity ratio Times interest earned ratio Price-earnings ratio 5.7 10 Last Year HILL COMPANY Comparative Balance Sheet This 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, $2.40 no par value. Common shares, 50,000 Retained earnings Total shareholders' equity Total liabilities and shareholders' equity 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 Selling and administrative expenses Operating income Interest expense Net income before taxes Income taxes (30%) Net income % %