CASE Harrod\'s Sporting Goods im Harrod knew that service, above all, was important to his customers. Jim and Becky Harrod had opened their first store in Omaha, Nebraska in 1991. HarTod\'s carried a full line of sporting goods including everything from baseball bats and uniforms to fishing gear and hunting equipment. By the year 2004, there were welve Harrod Jtore, producing $5 million in total sales and generating a profit of over S200,000 per Nebraska), took great pride in his stores as well as his prior university affiliation. He and Becky (also a University of Nebraska graduate in the mid-1980s) contributed S2,000 annually to the University of athletic The growth in the stores was the good news for Jim and Becky. The less than good news was the intense competition that they faced. Not only were they forced to compete On the positive side, there was an increasing demand for sporting goods as leisure time activities continued to grow Also, the state of Ncbraska, where all twelve stores were located, was experiencing moderate growth. Finally, there had been a sharp upturn in the last decade for women\'s sporting goods equipment. This was particularly true of softball uniforms for high school, college, and city league women\'s teams. Jim\'s wife Becky was one of the top softball players in the city of Omaha and her extensive contacts throughout the state help to bring in new business. While Nebraska is primarily known as a football state, Omaha actually hosts the college baseball world serried each ycar in Junme and this generates a lot of stores such as Oshman\'s and the Academy but Wal-Mart and Lowe\'s also represented intense competition for the sporting goods dollar. It appeared that every time Wal-Mart opened a new store near one of its l The national stores were extremely competitive in terms of pricing. However Jim, Becky and their employees offered service, and they hoped this to continue with their would allow In January of 2004, Becky, who served as the company\'s chief financial officer walked into Jim\'s office and said, \"Ive had it with the First National Bank of Omaha, It is willing to renew our loan and line of credit, but the bank wants to charge us 2½ percentage points over prime. The prime rate is the rate at which banks make loans to their most creditworthy customers. It was interest in baseball (and softball as well). Jim, who had been a walk-on third string offensive tackle at the University of Nebraska (the Cornhuskers in Lincoln,
1) Profitability ratios
Dupont analysis = profit margin * assets turnover * financial leverage
2) Over the three year time period the profitabiltiy of the company has increased from the year 2001 to 2002 and again fallen in 2003. This is becuase all ratios including the profit margin, return on assets and return on equity have followed the same trend and so has the return on equity as per the du pont analysis. This is due to a decrease in the net income in 2003 and an increase in 2002. the sales have an increasing trend over the years. The total equity and total assets have also increased over the years. The profits have fallen in 2003 due to an extraordinary loss of 170,000 resulting in low profits as compared to 2002. The operating profit before such extraordinary loss has an increasing trend over the three years. If this loss were to be not there, then the net income would have had an increasing trend from 2001 to 2003.
3) The profitability ratios after adjusting for the extraordianry loss are as follows:
Dupont ratio
4) Now, after adding back the extraordinary loss in 2003 to arrive at the increased net income, we see that the profitabiltiy trend has chnaged and it has become increasing from 2001 to 2003. All the ratios including profit margin, return on assets and return on equity are increasing from 2001 to 2003. This is because of an increasing trend in the net income along with an increasing trend in the sales. It was becuase of this extraordinary loss that the company had lower income in 2003. This shows consistency in companys profits earnings.
| 2001 | 2002 | 2003 |
| Profit margin | 4.5% | 5.4% | 4.0% |
| Return on assets | 6.1% | 7.4% | 5.8% |
| Return on equity | 16.0% | 18.5% | 15.0% |
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