Question

The Hill Company reported the following results:

	Year 3		Year 2		Year 1
Income Statement
Revenue	10,972		11,598		10,470
Cost of Goods Sold	8,942		8,767		7,901
Selling, General & Admin. Expenses	2,470		2,611		2,479
Interest expense	76		80		28
Net Income	(516)		140		62
Balance Sheet
Assets
Cash	1,354		1,316		1,880
Prepaid expenses	202		522		125
Accounts receivable	375		250		231
Inventory	745		698		455
Property & equipment (net)	20,464		18,810		17,727
Total Assets	23,140		21,596		20,418
Liabilities
Accounts payable	2,824		743		678
Unredeemed gift cards	410		850		636
Notes Payable	15,457		18,048		17,024
Stockholders' Equity
Common Stock	985		545		815
Retained Earnings	3,464		1,410		1,265
Total Liabilities & Equity	23,140		21,596		20,418

1. For a horizontal analysis, what is the percent change in revenues for year 3? Convert your final answer to a percentage, round to one decimal place and enter without the "%" sign (e.g. a final answer of 0.105678 would be entered as 10.6).

2. What is the company's current ratio for Year 2? Round your final answer to two decimal places.

3.Over the three year period, the company's current ratio is

A) getting better.

B) getting worse.

4. What is the company's days sales in inventory ratio for Year 2? Round your final answer to one decimal place.

5. What is the company's gross profit ratio for Year 3? Convert your final answer to a percentage, round to one decimal place and enter without the "%" sign (e.g. a final answer of 0.105678 would be entered as 10.6).

6.What is the company's return on investment ratio for Year 1? Convert your final answer to a percentage, round to one decimal place and enter without the "%" sign (e.g. a final answer of 0.105678 would be entered as 10.6).

7. Based on the three years of data, the company's return on investment ratio has

A) improved.

B) worsened.

C) stayed the same.

Answer 1

1. Calculate the percentage change in revenues for year three as follows Percentage change in revenues for Year 3 ($10,972 - $11,598) $11,598 =-0,05 = - 5% 2. Year 2 Current Assets: 1,316 Cash Prepaid expenses Accounts receivable Inventory Total current assets [a] 522 250 698 2,786 Current Liabilities: Accounts payable Unredeemed gift cards Total current liabilities [b] 743 850 1,593 Current ratio 1.75 Therefore, current ratio for Year 2 is 1.75

3. Calculate current ratio for each of the three years in the following manner: Year 3 Year 2 Year 1 Current Assets: Cash 1,316 1,880 1,354 Prepaid expenses 125 202 522 Accounts receivable 375 231 250 Inventory Total current assets [a] 745 698 455 2,676 2,786 2,691 Current Liabilities: Accounts payable Unredeemed gift cards 678 2,824 743 410 850 636 Total current liabilities [b] 3,234 1,593 1,314 Current ratio 0.83 1.75 2.05 The chart presented above clearly shows that the current ratio has been decreasing over the three years Therefore, the correct answer is B) getting worse 4. Calculate days' sales in inventory for Year 2 by dividing the cost of goods sold for Year 2 by the average inventory for year 2 Cost of goods sold for Year 2 = $8,767 Average inventory for Year 2 ($698 $455) 2 $576.50 Therefore, Days' sales in inventory = $8,767 $576.50 15.2

5. Calculate gross profit ratio for Year 3 by dividing gross profit for Year 3 by revenue for Year 3 Gross profit for Year 3 = Revenue for Year 3 - Cost of goods sold for Year 3 $10,972 - $8,942 - $2,030 Revenue for Year 3 = $10,972 Therefore $10,972 0.185 or 18.5% Gross profit ratio for Year 3 = $2,030 6 Calculate return on investment for Year 1 by dividing the net income for Year 1 bv total assets for Year 1 Return on investment for Year 1 = Net income for Year 1 Total assets for Year 1 $62 $20,418 0.003 or 0.3% = 7 Based on the three years of data, the company's return on investment ratio has B) worsened