Harrod’s Sporting Goods Case 1
Ratio Analysis
Purpose: The case allows the student to examine ratio analysis within the context of a customer-banking
arrangement. The firm has a disagreement with the bank over how much it should be paying in relation to
prime (no prior knowledge of banking is required for the case). An item of particular interest is the impact
of an extraordinary loss on the firm’s income statement. It has a major effect on the analysis of the
company. Industry comparisons also are utilized.
Relation to Text: The case should follow Chapter 3.
Complexity: The case is moderately complex. It should require 1 to 1½ hours.
Solutions
1. Ratios 2013 2014 2015
1. Net income 4.52 5.42% 3.99%
Sales
2a. Net income 6.09% 7.23% 5.71%
3. 2013 2014 2015
1. Net income 4.522 5.42% 6.19%
Sales
2a. Net income 6.09% 7.23% 8.85%
Total assets
5. Harrod has a clear superiority in the profit margin (6.19% vs. 4.51%). This is further enhanced by a more
rapid asset turnover (1.43 vs. 1.13) to give an even more superior return on total assets (8.85% vs. 5.1%).
6. Ratios 2015 Industry
1. Sales 6.31 5.75
Receivables
7. Becky would appear to have strong grounds for a complaint. It appears that the banker was using
unadjusted income statement numbers to arrive at the conclusion that Harrod’s was on a downward trend