Prepared analysis of a single - Case Study Example

The increased size of the company has been one of the components that have created the company’s strong competitive platform. However, the sales of the season were below the expectations. The company made substantial losses due to the low returns. The management reacted to the situation by selling 15 stores to raise some cash. The management of the company has provided both income statement and the statement of financial position to assist in assessing the actual problem faced by the organization.

Based on the company’s income statement, the net sales have steadily been increasing since the year 2006 to the most current year 2011. Similar trend applies to the earnings before interest and tax and the net income. However, as at the end of 2011, both earnings before interest and tax and the net income for the company sharply decreased to a negative figure. In the year 2010, the EBIT stood at $ 312 millions, but dropped to $ -9 million. Similarly, the net income during the financial period 2010 was $ 189 million but dropped to $ -49 million.

Surprisingly, the net sales of the year2010 and 2011 were $ 3,314 million and $ 3,351 million, indicating an increase in the figure between the two periods. Therefore, the main questions in the case study are as follows: first, what seems to be the problem with the Hobby Horse company? Second, are any issues to be addressed revealed by the company’s financial statement? In order to answer the second question and probably find some leads to address the second, the following financial ratios have been conducted for a four year period (2008-2011): gearing ratios, profitability ratios, and liquidity ratios for Debt/equity - ratio indicates the proportion of fixed charge capital in the capital structure of a firm.

Concerning Hobby Horse Company, the ratios from 2008 to 2011 are 0.6195, 0.4958, 0.2193 and 0.349 respectively. The ratio interpretation for the