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

Answer 1

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Answer 2

For the Hill Company, the required computations are as follows:

1. The change in revenues for Year 3 is 4.8.

2. The current ratio for Year 2 is 1.75.

3. Days Sales in Inventory Ratio for Year 2 is 24.0 days

Data and Calculations:

                                                       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. Exp.  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. Change in Revenues:

Revenue in Year 1 =  $10,470

Revenue in Year 3 = $10,972

Change in Revenue =  $502

Percentage change in Revenue in Year 3 = 4.79% ($502/$10,470 x 100)

2. Current ratio for Year 2

= Current Assets/Current Liabilities

= $2,786/$1,593

= 1.75

3. Days Sales in Inventory Ratio for Year 2:

= 365/Inventory Turnover Ratio

= 365/15.2

= 24.0 days

Hill Company's Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory

Average Inventory for Year 2 = $576.5 ($698 + $455)/2

Hill Company's Inventory Turnover Ratio = 15.2 ($8,767/$576.5)

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