Question

Recalling the Hobby Horse Case (page 158), using the following financial ratios and showing your calculations, identify the key issues and trends at Hobby Horse and why you believe Hobby Horse is headed in the right direction or wrong direction and what your financial ratio analysis is telling you about Hobby Horse’s financial condition and trends.

a.Asset Turnover

a.Debt to Equity

a.Receivables Turnover

a.Return on Assets

MINICASE Burchetts Green had enjoyed the bank training course, but it was good Mr. Green was familiar with the HH story. Founded in 1990, it to be starting his first real job in the corporate lending group. Earlier had rapidly built up a chain of discount stores selling materials for that morning the boss had handed him a set of financial statements for crafts and hobbies. However, last year a number of new store open The Hobby Horse Company Inc. (HH). "Hobby Horse," she said, "hasings coinciding with a poor Christmas season had pushed the com- a $45 million loan from us due at the end of September, and it is likelypany into loss. Management had halted all new construction and to ask us to roll it over. The company seems to have run into some put 15 of its existing stores up for sale. rough weather recently, and I have asked Furze Platt to go down there Mr. Green decided to start with the 6-year summary of HH's this afternoon and see what is happening. It might do you good to go balance sheet and income statement (Table 4.10). Then he turned along with her. Before you go, take a look at these financial statements to examine in more detail the latest position (Tables 4.11 and 4.12). and see what you think the problems are. Here's a chance for you to What appear to be the problem areas in HH? Do the financial use some of that stuff they taught you in the training course." ratios suggest questions that Ms. Platt and Mr. Green need to address? TABLE 4.10 Financial highlights for The Hobby Horse Company Inc., year ending March 31 2019 3,351 2018 3,314 312 2017 2,845 256 2016 2,796 243 58 2015 2,493 212 AR 2014 2,160 156 -9 37 63 60 43 39 189 145 76 0.55 469 0.42 435 Net sales EBIT Interest Taxes Net profit Earnings per share Current assets Net fixed assets Total assets Current liabilities Long-term debt Stockholders' equity Number of stores Employees 125 0.37 392 610 1,002 0.25 423 536 959 780 79 680 1.115 -49 -0.15 669 923 1,592 680 236 676 240 13,057 0.44 491 753 1.244 348 297 599 211 9,810 276 1,249 365 159 725 221 11,835 320 302 311 502 184 9.790 319 407 170 9,075 315 324 157 7,825

Answer 1

Particulars	2019	2018	2017	2016	2015	2014
Net Sales	3351	3314	2845	2796	2493	2160
EBIT	-9	312	256	243	212	156
Interest	37	63	65	58	48	46
Taxes	3	60	46	43	39	34
Net Profits	-49	189	145	142	125	76
Earnings per Share	-0.15	0.55	0.44	0.42	0.37	0.25
Current Assets	669	469	491	435	392	423
Net Fixed Assets	923	780	753	680	610	536
Total assets	1592	1249	1244	1115	1002	959
Current Liabilites	680	365	348	302	276	320
Long Term Debt	236	159	297	311	319	315
Stock Holder's Equity	676	725	599	502	407	324
Number of Stores	240	221	211	184	170	157
Employees	13057	11835	9810	9790	9075	7825
Asset Turn Over Ratio	2.10	2.65	2.29	2.51	2.49	2.25
= Sales / Total Assest
Higher asset turnover ratio is favorable for it measures the efficiency of a firm to use assets to boost up sales. Lower ratio will imply the under utilization of the fixed assets and that the company needs to address its management or production problems.The given Position looks fairly Good. As the Returns on Assets are more than 1. So i suggest the management needs not to cut short on the Assets.
Debt to Equity Ratio	0.349	0.22	0.50	0.62	0.78	0.97
= Total Debts / Shareholder's Equity
In general, the ideal Debt Equity Ratio Ranges between 1 to 1.5. A low debt-to-equity ratio indicates that the company is not taking advantage of the increased profits that financial leverage may bring.It is suggested that the Company should lay off some of the Share Capital and to use more Loans to finance the operation.Over the years the Equity portion of the finance mix has increased similarly the Debt portion of the finance Mix has declined. This has reduced the profitability of the Company as a whole.
Assuming the Current Assets are all Account Receivable,
Average AR =	903.5	715	709	631	604	423
Accounts Receivable Turnover
= Net Sales / Average AR	3.709	4.638	4.016	4.431	4.131	5.106
Average AR in Days = 365 / ART Ratio	98.41	78.69	90.9	82.37	88.36	71.48
Accounts receivable turnover ratio gives the business a solid idea of how efficiently it collects on debts owed toward credit it extended, with a lower number showing higher efficiency.It shows an average collection Period ranging between 70 to 100. For a business operation, this is a very long time and the collection department seems to be lagging Behind.
Avg. Total Assets =	2217	1871	1802	1616	1482	959
Return on Assets
= Net Income / Average total Assets	-0.022	0.101	0.08	0.088	0.084	0.079
The return on assets (ROA) shows the percentage of how profitable a company's assets are in generating revenue. It shows the amount of Returns on each Dollor of Asset Invested into the Business. In the given Firm, the ROA has been declining gradually. And the Investor shall consider the reasonability before continuing the Business, or he should Invest in cutting Costs to enhance its return on Assets/Investment.