Instructions: For this case you should prepare a spreadsheet that calculates financial ratios for
Hobby Horse. The data you will need is already added to the “Case Study One” spreadsheet to save
you time. Where possible, show trends in the ratios over time; they will provide more information
than just looking at a single year.
Once you have completed the case study, answer the questions about the case study, the questions
are found in the “Case Study One Questions” section of the course. After answering the questions,
submit your spreadsheet to Independent study.
For information on submitting the excel sheet to Independent Study, please see the syllabus.
Please put your name on the excel sheet before submitting it.
Case Study One Instructions
Case Study One Spreadsheet
Hobby Horse Case Study:
Burchetts Green had enjoyed the bank training course, but it felt good to be starting his first real job
in the corporate lending group. Earlier that morning, the boss had handed him a set of financial
statements for the Hobby Horse Company, Inc. (HH).
“Hobby Horse,” she said, “has a $45 million loan from us due at the end of September, and it is likely
to ask us to roll it over. The company seems to have run into some rough weather recently and I
have asked Fruze Platt to go down there this afternoon and see what is happening. It might do you
good to go along with her. Before you go, take a look at these financial statements and see what you
think the problems are. Here’s a chance for you to use some of that stuff they taught you in the
training course.”
Mr. Green was familiar with the HH story. Founded in 1990, it had rapidly built up a chain of discount
stores selling materials for crafts and hobbies. However, last year a number of new store openings
coincided with a poor Christmas season and had pushed the company into loss. Management had
halted all new construction and put fifteen of its existing stores up for sale.
Mr. Green decided to start with the six-year summary of HH’s balance sheet and income statement .
Then he turned to examine the latest position in more detail .
FINANCIAL HIGHLIGHTS FOR HOBBY HORSE
2008
2007
2006
2005
2004
2003
Sales
3,351
3,314
2,845
2,796
2,493
2,160
EBIT
-9
312
256
243
212
156
Interest
37
63
65
58
48
46
Taxes
3
60
46
43
39
34
Net profit
-49
189
145
142
125
76
EPS
-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
1,592
1,249
1,244
1,115
1,002
959
Current liabilities
680
365
348
302
276
320
LT debt
236
159
297
311
319
315
Shareholders’ equity
676
725
599
502
407
324
Stores
240
221
211
184
170
157
Employees
13,057
11,835
9,810
9,790
9,075
7,825
INCOME STATEMENT, 2008
(in millions of dollars)
Net sales
3,351
Cost of goods sold
1,990
S, G & A expenses
1,211
Depreciation expense
159
EBIT
-9
Net interest expense
37
Taxable income
-46
Income taxes
3
Net Income
-49
Addition to RE
-49
Dividends
0
BALANCE SHEET
Assets
2008
2007
Current assets
Cash & securities
14
72
Receivables
176
194
Inventories
479
203
Total current assets
669
469
Fixed Assets
PP&E (net of depreciation)
1,077
910
Less accumulated depreciation
154
130
Net fixed assets
923
780
Total assets
1,592
1,249
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Debt due for repay
484
222
Accounts payable
94
58
Other current liabilities
102
85
Total current liabilities
680
365
Long-term debt
236
159
Stockholders’ equity
Par + paid-in cap
155
155
Retained earnings
521
570
Total stock equity
676
725
Total liabilities + stock equity
1,592
1,249
Note: If you haven’t had much experience with cases, analyzing them takes some getting used to.
Everything you are supposed to do is not spelled out for you; it takes some thought on your part.
Such is the case in real business situations. You may know what the problem is, but it isn’t always
obvious how to approach the problem or how to solve it. You learn as you work your way through the
uncertainty. Sometimes in cases there is not just one correct answer you should be searching for.
How well you back up your recommendations is usually more important than the recommendations
themselves. A good case analysis offers concrete, quantitative support for the recommendations
given.
Case Study Questions
Please type the answers to these questions in the “Case Study One Questions” section of the
course.
As a banker, what would be your greatest concern regarding the decision to roll over the loan to
Hobby Horse? (To roll over a loan means to extend the amount of time until the loan must be
repaid.)
What do you see as the source of Hobby Horse’s current difficulties?
Does Hobby Horse have too much debt?
Do you see any signs of mismanagement or lack of efficiency at Hobby Horse?
What actions would you recommend Hobby Horse take to ease their current difficulties?
As a banker, would you be willing to roll over the loan to Hobby Horse? Why or why not?
