Professional Documents
Culture Documents
219
9. Users are interested in the capital structure of a company, as measured by debt and
equity ratios, for at least two reasons. First, as a company includes more debt in its
capital structure, the risk that it will be unable to meet interest and principal
payments increases. Second, the existence of debt introduces financial leverage. If
the company can earn a rate of return on its investments that exceeds the rate of
interest paid to creditors, the debt will increase the rate of return to stockholders.
10. Inventory turnover reflects on the efficiency of inventory management. That is, a
high inventory turnover means that a given sales volume can be supported with a
smaller investment in inventory. This insight into the speed with which inventory is
sold determines the relevance of the available inventory in meeting the current
obligations of the business, which is a focus of short-term liquidity.
11. Since management is responsible for a company's performance, all ratios that are
useful in evaluating a company are of some usefulness in assessing management
performance. Profit margin, total asset turnover, return on total assets, and return
on stockholders' equity are especially useful for assessing management's
responsibility for operating efficiently and profitably.
12. The ratio of pledged assets to secured liabilities must be interpreted with care
because the book value of the pledged assets is used in calculating the ratio, and
the book value is unlikely to always approximate the assets market value.
13. Almost all companies have some liabilities. Since total assets equals total liabilities
plus equity, total assets is almost always higher than common stockholders' equity.
Thus, the denominator in return on total assets is larger than common stockholders'
equity. Since the numerator is the same for both, and return on total assets has a
larger denominator, it yields a smaller percent. [Instructor note: A more complete
measure of return on assets would add back (Interest Expense x {1 Tax Rate}) to
net income in the numeratorreflecting the after-tax cost of debt. We leave the
rationale for this adjustment to advanced courses.]
14. Return on total assets (2003):
$33,478
($410,487 + $255,376)/2
= 10.1%
= 12.4%
= 40.8%
= 47.4%
= 14.2%
QUICK STUDY
Quick Study 17-1 (5 minutes)
1.
3.
5.
9.
2004
Dollar
Change
Percent
Change
221
Short-term investments..............
$217,800 $165,000
Accounts receivable...................
42,120
48,000
Notes payable..............................
57,000
0
$52,800
32%
(5,880)
-12.3%
57,000 (not calculable)
2.
Common-size percents
2005
54.2%
($109,200 / $201,600)
2004
52.4%
($60,200 / $114,800)
Trend percents
2005
175.6%
($201,600 / $114,800)
2004
100.0%
6.
2.
7.
3.
8.
4.
9.
5.
10.
2005
2004
Change
6%
2. Debt Ratio..............................................45%
40%
Unfavorable
45%
Unfavorable
4. Acid-test Ratio.......................................0.99
1.10
Unfavorable
6.6
Unfavorable
$1.20
Favorable
Favorable
223
3.3
Favorable
8. Dividend Yield........................................ 1%
.8%
Favorable
EXERCISES
Exercise 17-1 (20 minutes)
2007
Sales........................................188
Cost of goods sold.................190
Accounts receivable..............191
2006
180
181
183
2005
168
171
174
2004
156
158
162
2003
100
100
100
Analysis: The trend in sales is positive. While this is better than no growth, one
cannot definitively say whether the sales trend is favorable without additional
information about the economic conditions in which this trend occurred such as
inflation rates and competitors performances.
Given the trend in sales, the comparative trends in both cost of goods sold and
accounts receivable are somewhat unfavorable. In particular, for the most recent
year, both are increasing at slightly faster rates (indexes for cost of goods sold is
190 and accounts receivable is 191) compared to sales (index is 188).
225
2005
100.0%
66.0
34.0
21.0
13.0%
2004
100.0%
52.4
47.6
19.4
28.2%
Analysis: Overall, this companys situation has worsened. This is evident from the
substantial decline in net income as a percent of sales for 2005 (13.0%) relative to
2004 (28.2%). The main culprit is the increase in cost of goods sold as a percent
of sales from 52.4% in 2004 to 66.0% in 2005. On a somewhat positive note, the
company has not experienced as large of an increase in operating expenses as a
percent of sales; from 19.4% in 2004 to 21.0% in 2005. Even more positive is the
companys level of sales increase from $535,000 in 2004 to $720,000 in 2005.
227
5.9%
8.0%
2004*
9.9%
14.0
13.2
18.5
14.2
1.9
2.1
1.1
57.3
61.6
100.0%
100.0%
16.9%
13.2%
23.0
22.1
36.5
43.6
23.5
21.0
100.0%
100.0%
Prepaid expenses..............................................
2.
Current ratio
2006:
= 1.87 to 1
2005:
= 2.52 to 1
2004:
= 2.90 to 1
Acid-test ratio
2006:
$30,800 + $88,500
$128,900
= 0.93 to 1
2005:
$35,625 + $62,500
$75,250
= 1.30 to 1
2004:
$36,800 + $49,200
$49,250
= 1.75 to 1
229
2.
3.
4.
$88,500
x 365 = 48.0 days
$672,500
2005:
$62,500
x 365 = 43.0 days
$530,000
$672,500
($88,500 + $62,500)/2
= 8.9 times
2005:
$530,000
($62,500 + $49,200)/2
= 9.5 times
Inventory turnover
2006:
$410,225
= 4.2 times
($111,500 + $82,500)/2
2005:
$344,500
($82,500 + $53,000)/2
= 5.1 times
$111,500
$410,225
x 365 = 99 days
$82,500
x 365 = 87 days
$344,500
2005
43.7%
$75,250 + $102,500.......................
$177,750
39.9%
56.3
$162,500 + $104,750.....................
_______
____
267,250
100.0%
60.1
$445,000 100.0%
0
2. Pledged assets to secured liabilities
2006: $277,500 / $97,500 = 2.8 to 1
2005: $255,000 / $102,500 = 2.5 to 1
3. Times interest earned
2006: ($34,100 + $8,525 + $11,100) / $11,100 = 4.8 times
2005: ($31,375 + $7,845 + $12,300) / $12,300 = 4.2 times
Analysis and Interpretation: Sexton added debt to its capital structure
during 2006, with the result that the debt ratio increased from 39.9% to
43.7%. However, the book value of pledged assets is well above secured
liabilities (2.8 to 1 in 2006 and 2.5 to 1 in 2005), and the increased
profitability of the company allowed it to increase the times interest earned
from 4.2 to 4.8 times. Apparently, the company is able to handle the
increased debt. However, we should note that the debt increase is entirely
in current liabilities, which places a greater stress on short-term liquidity.
231
Profit margin
2006: $34,100 / $672,500 = 5.1%
2005: $31,375 / $530,000 = 5.9%
2.
3.
$672,500
= 1.4 times
($518,000 + $445,000)/2
2005:
$530,000
= 1.3 times
($445,000 + $372,500)/2
= 7.1%
$31,375
2005: ($445,000 + $372,500)/2
= 7.7%
2.
$34,100
($291,600 + $267,250)/2
= 12.2%
2005:
$31,375
($267,250 + $240,750)/2
= 12.4%
3.
Dividend yield
2006: $0.30 / $15 = 2.0%
2005: $0.15 / $14 = 1.1%
233
PROBLEM SET A
Problem 17-1A (60 minutes)
Part 1
Current ratio:
Part 2
BENNINGTON COMPANY
Common-Size Comparative Income Statements
For Years Ended December 31, 2006, 2005, and 2004
2006
2005
2004
100.00%
100.00%
62.50
64.00
Gross profit.................................................39.80
37.50
36.00
Selling expenses........................................14.12
13.80
13.20
8.80
8.25
Total expenses...........................................23.16
22.60
21.45
14.90
14.55
3.05
2.95
11.85%
11.60%
Sales............................................................
100.00%
Net income..................................................13.54%
2005
2004
Assets
Current assets..................................
95.72%
74.88%
100.00%
Long-term investments....................
0.00
13.44
100.00
Plant assets......................................
157.89
168.42
100.00
Total assets.......................................
124.34
120.70
100.00
103.70% 102.46%
100.00%
Common stock.................................
133.33
133.33
100.00
150.00
150.00
100.00
Retained earnings............................
116.91
104.94
100.00
124.34
120.70
100.00
Part 4
Significant relations revealed
Benningtons selling expenses, administrative expenses, and income taxes
took larger portions of each sales dollar in 2005 than 2004. However, because
the cost of goods sold took a smaller portion in 2005, some efficiency was
gained. In 2006 these trends continued. Selling expenses, administrative
expenses, and income taxes continued to take a greater portion of each sales
dollar while the gross profit portion continued to improve.
Bennington expanded its plant assets in 2005, financing the expansion
through the sale of long-term investments, through a reduction in working
capital (the current ratio decreased from 2.6 to 1 to 1.9 to 1), and perhaps
through the sale of a small amount of stock. As to the stock increase, it is not
possible to tell from these two statements whether the company sold shares
or declared a stock dividend. In either case, the increase in retained earnings
during 2005 indicates that net income was larger than the reductions from
cash (and perhaps stock) dividends. In 2006, cash dividends were paid.
235
2005
2004
2003
2002
2001
2000
191.8
165.0
144.4
134.2
125.5
100.0
Gross profit...........................131.0
135.7
136.8
135.1
126.9
117.0
100.0
Operating expenses.............265.6
207.8
190.6
140.6
121.9
120.3
100.0
92.5
104.7
131.8
129.9
115.0
100.0
2000
SUGU COMPANY
Balance Sheet Trends
December 31, 2006-2000
2006
2005
2004
2003
2002
2001
Cash....................................... 68.7%
88.9%
92.9%
94.9%
99.0%
97.0%
244.7
221.4
169.9
149.5
141.7
100.0
Merchandise inventory........337.5
245.4
214.4
181.0
162.3
137.9
100.0
221.1
126.3
231.6
200.0
200.0
100.0
100.0
100.0
100.0
100.0
256.2
224.5
126.5
130.7
116.4
100.0
Total assets...........................247.3
222.9
196.0
144.4
138.6
124.0
100.0
Current liabilities..................411.8
346.3
227.2
189.0
164.0
155.1
100.0
Long-term liabilities.............306.2
266.7
259.5
120.5
123.1
133.3
100.0
Common stock.....................156.3
156.3
156.3
131.3
131.3
100.0
100.0
156.3
156.3
112.5
112.5
100.0
100.0
Retained earnings................262.7
230.8
191.7
176.3
162.1
145.0
100.0
222.9
196.0
144.4
138.6
124.0
100.0
Long-term investments.......
100.0%
237
Current
Assets
Quick
Assets
Current
Liabilities
Beginning*
$650,000
$286,000
$260,000
2.50
1.10 $390,000
May 2
+ 75,000
_______
+ 75,000
____
____
_______
725,000
286,000
335,000
2.16
0.85
390,000
+103,000
+103,000
- 58,000
_______
_______
____
____
_______
770,000
389,000
335,000
2.30
1.16
435,000
+ 19,000
+ 19,000
- 19,000
- 19,000
_______
____
____
_______
770,000
389,000
335,000
2.30
1.16
435,000
- 21,000
- 21,000
- 21,000
____
____
_______
749,000
368,000
314,000
2.39
1.17
435,000
+0
+0
_______
____
____
_______
Bal.
749,000
368,000
314,000
2.39
1.17
435,000
May 22
_______
_______
+ 40,000
____
____
_______
Bal.
749,000
368,000
354,000
2.12
1.04
395,000
- 40,000
- 40,000
- 40,000
____
____
_______
709,000
328,000
314,000
2.26
1.04
395,000
+ 75,000
+ 75,000
+ 75,000
____
____
_______
784,000
403,000
389,000
2.02
1.04
395,000
+ 90,000
+ 90,000
________
____
____
_______
874,000
493,000
389,000
2.25
1.27
485,000
May 29
- 165,000
- 165,000
________
____
____
_______
Bal.
$709,000
$328,000
$389,000
1.82
0.84
$320,000
Bal.
May 8
Bal.
May 10
Bal.
May 15
Bal.
May 17
May 26
Bal.
May 27
Bal.
May 28
Bal.
Current Acid-Test
Ratio
Ratio
Working
Capital
*Beginning balances
Current assets (given).............................................
$650,000
Current liabilities ($650,000 / 2.50).........................
260,000
Quick assets ($260,000 x 1.10)................................
286,000
239
Current ratio
$9,000 + $7,400 + $28,200 + $3,500 + $31,150 + $1,650
$16,500 + $2,200 + $2,300
2.
Acid-test ratio
$9,000 + $7,400 + $28,200 + $3,500
$16,500 + $2,200 + $2,300
3.
Inventory turnover
$229,150
($32,400 + $31,150)/2
5.
= 7.2 times
6.
= 2.3 to 1
4.
= 3.9 to 1
7.
8.
= 13.8%
10.
11.
241
Priest Company
a. Current ratio
$150,440
$60,340 = 2.5 to 1
$233,050
$92,300 = 2.5 to 1
$63,000
$60,340
$95,600
$92,300
b. Acid-test ratio
= 1.0 to 1
= 1.0 to 1
$780,200
($56,400 + $6,200 + $53,200)/2 = 13.5 times
d. Inventory turnover
$485,100
($83,440 + $54,600)/2 = 7.0 times
$532,500
($131,500 + $106,400)/2 = 4.5 times
$131,500
x 365 = 90.1 days
$532,500
$56,400 + $6,200
$780,200
Short-term credit risk analysis: Ryan and Priest have essentially equal current
ratios and equal acid-test ratios. However, Ryan both turns its merchandise
and collects its accounts receivable more rapidly than does Priest. On this
basis, Ryan probably is the better short-term credit risk.
Priest Company
$105,000
= 13.5%
$780,200
$780,200
= 1.7 times
($536,450 + $372,500)/2
$105,000
($536,450 + $372,500)/2
= 23.1%
$105,000
= 32.8%
($344,150 + $295,600)/2
e. Price-earnings ratio
$25
$1.94
= 12.9
$25
$2.56
= 9.8
$1.50
$25
= 6.0%
f. Dividend yield
$1.50
$25
= 6.0%
Investment analysis: Priest's profit margin ratio, total asset turnover, return
on total assets, and return on common stockholders' equity are all higher than
Ryan's. Although the companies pay the same dividend, Priest's priceearnings ratio is lower. All of these factors suggest that Priest's stock is likely
the better investment.
243
PROBLEM SET B
Problem 17-1B (60 minutes)
Part 1
Current ratio:
Part 2
SAWGRASS CORPORATION
Common-Size Comparative Income Statements
For Years Ended December 31, 2006, 2005, and 2004
2006
Sales............................................................
100.00%
2005
2004
100.00%
100.00%
52.20
46.41
Gross profit.................................................45.00
47.80
53.59
Selling expenses........................................11.85
12.45
13.12
9.35
11.53
Total expenses...........................................20.74
21.80
24.65
26.00
28.94
2.94
2.97
23.06%
25.97%
Net income..................................................21.73%
* Some totals do not reconcile due to rounding.
2005
2004
Assets
Current assets............................................
149.76%
90.24%
100.00%
23.28
100.00
Plant assets................................................
142.26
143.33
100.00
Total assets.................................................
131.63
117.16
100.00
100.00%
Common stock...........................................
125.00
125.00
100.00
120.73
100.00
Retained earnings......................................
137.40
112.09
100.00
117.16
100.00
Part 4
Significant relations revealed
Sawgrass's cost of goods sold took a larger percent of sales each year.
Selling and administrative expenses and income taxes took a somewhat
smaller portion each year, but not enough to offset the effect of cost of goods
sold. As a result, income became a smaller percent of sales each year.
The large expansion of plant assets in 2005 was financed by a reduction in
current assets, an increase in current liabilities, a large reduction in long-term
investments, and apparently by a stock sale. One effect of this plan was to
reduce the current ratio. However, the current ratio recovered in 2006. This
apparently resulted from profits, limiting the amount of dividends paid, and
the liquidation of long-term investments.
245
2005
2004
2003
2002
2001
2000
76.0%
81.3%
87.5%
90.6% 100.0%
81.3
82.1
86.3
91.7
93.8
100.0
66.7
70.0
76.3
83.3
87.5
100.0
81.6
84.8
90.4
96.0
97.6
100.0
50.4
53.9
60.9
69.6
76.5
100.0
2002
2001
2000
DEUCE COMPANY
Balance Sheet Trends
December 31, 2006-2000
2006
2005
2004
2003
84.0
86.7
89.3
93.3
96.0
100.0
81.8
84.8
85.9
88.9
90.9
100.0
80.0
86.7
93.3
93.3
100.0
100.0
20.0
16.0
100.0
100.0
100.0
100.0
116.9
118.6
88.1
90.4
92.7
100.0
87.9
90.1
88.5
91.5
93.7
100.0
54.1
65.2
66.7
74.1
92.6
100.0
44.0
52.8
55.2
73.6
81.6
100.0
Common stock.....................100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Retained earnings................212.5
197.5
177.5
162.5
137.5
106.3
100.0
87.9
90.1
88.5
91.5
93.7
100.0
247
Current
Assets
Quick
Assets
Current
Liabilities
Current
Ratio
Beginning*
$280,000
$120,000
$100,000
2.80
1.20
$180,000
June 1
+101,000
+101,000
- 62,000
________
________
____
____
_______
319,000
221,000
100,000
3.19
2.21
219,000
+ 78,000
+ 78,000
- 78,000
- 78,000
________
____
____
_______
319,000
221,000
100,000
3.19
2.21
219,000
________ +130,000
____
____
_______
Bal.
June 3
Bal.
June 5
Bal.
June 7
Bal.
June 10
Bal.
June 12
Bal.
June 15
Bal.
+130,000
Acid-Test
Ratio
Working
Capital
449,000
221,000
230,000
1.95
0.96
219,000
+ 90,000
+ 90,000
+ 90,000
____
____
_______
539,000
311,000
320,000
1.68
0.97
219,000
+180,000
+180,000
_______
____
____
_______
719,000
491,000
320,000
2.25
1.53
399,000
- 280,000
- 280,000
________
____
____
_______
439,000
211,000
320,000
1.37
0.66
119,000
____
____
_______
439,000
211,000
380,000
1.16
0.56
59,000
+0
+0
________
____
____
_______
439,000
211,000
380,000
1.16
0.56
59,000
- 11,000
- 11,000
- 11,000
____
____
_______
428,000
200,000
369,000
1.16
0.54
59,000
June 30
- 60,000
- 60,000
- 60,000
____
____
_______
Bal.
$368,000
$140,000
$309,000
1.19
0.45
59,000
June 19
Bal.
June 22
Bal.
*Beginning balances
Current assets (given).............................................
$280,000
Current liabilities ($280,000 / 2.80).........................
100,000
Quick assets ($100,000 x 1.20)................................
120,000
249
Current ratio
$5,100 + $5,900 + $11,100 + $2,000 + $12,500 + $1,000
$10,500 + $2,300 + $1,600
2.
Acid-test ratio
$5,100 + $5,900 + $11,100 + $2,000
$10,500 + $2,300 + $1,600
3.
= 2.6 to 1
= 1.7 to 1
4.
Inventory turnover
$136,100
= 9.4 times
($12,500 + $16,400)/2
5.
6.
7.
8.
10.
11.
= 39.0%
251
Clear Company
a. Current ratio
$215,200
$92,500 = 2.3 to 1
$218,100
$99,000 = 2.2 to 1
$114,700
$92,500 = 1.2 to 1
$122,000
$99,000 = 1.2 to 1
b. Acid-test ratio
$669,500
= 8.4 times
($72,500 + $11,000 + $75,300)/2
d. Inventory turnover
$292,600
($88,800 + $107,100)/2 = 3.0 times
$482,000
($84,000 + $82,500)/2
= 5.8 times
$84,000
$482,000
$72,500 + $11,000
x 365 = 45.5 days
$669,500
Short-term credit risk analysis: Loud and Clear have nearly equal current
ratios and equal acid-test ratios. However, Clear both turns its merchandise
and collects its accounts receivable much more rapidly than Loud. On this
basis, Clear probably is the better short-term credit risk.
Clear Company
$63,700
$669,500
= 9.5%
= 1.02 times
$669,500
= 1.46 times
($472,400 + $445,000)/2
= 9.2%
$63,700
= 13.9%
($472,400 + $445,000)/2
= 18.3%
$63,700
($278,100 + $254,700)/2
= 23.9%
e. Price-earnings ratio
$25
$1.33 = 18.8
$25
= 11.2
$2.23
f. Dividend yield
$3
$25 = 12.0%
$3
= 12.0%
$25
Investment analysis: Clear's profit margin, total asset turnover, return on total
assets, and return on common stockholders' equity are all higher than Loud's.
Also, Clear has a lower price-earnings ratio, while paying the same dividend.
These factors indicate that Clear stock is likely the better investment.
253
SERIAL PROBLEM
Serial Problem, Success Systems (45 minutes)
1. Gross margin with services revenue
Gross margin
= Total revenue Cost of goods sold
= $43,853 - $14,052 = $29,801
Gross margin ratio = $29,901 / $43,853 = 68.2%
Gross margin without services revenue
Gross margin
= Net (goods) sales Cost of goods sold
= $18,693 - $14,052 = $4,641
Gross margin ratio = $4,641 / $18,693 = 24.8%
Profit margin ratio
2. Current ratio
Acid-test ratio
3. Debt ratio
Equity ratio
Reporting in Action
BTN 17-1
2002
2001
Revenues.............................................................. 163%
131%
100%
126
100
137
100
178
100
179
100
2002
39.9%
44.1
6.5
10.5
3. For 2002 and 2003, the trend percents for operating expenses (costs of
sales) are slightly less than that for revenues. These comparisons show
that Krispy Kremes costs of sales are being effectively controlled and not
growing faster than revenues. However, the trend percents for general and
administrative expenses (137) exceed that for revenues (131) in 2002.
Moreover, for 2002 and 2003, income taxes were markedly higher than
revenue growth. On the other hand, a positive sign was that bottom line
net income grew faster than top line revenue in both 2002 and 2003.
The common-size percent figures show a shift away from current assets
(34.4% in 2003 vs. 39.9% in 2002) toward more property and equipment
assets (49.3% in 2003 vs. 44.1% in 2002) and intangible assets (11.9% in
2003 vs. 6.5% in 2002).
255
Comparative Analysis
BTN 17-2
1.
Key figures ($ thousands)
Krispy Kreme
$32,203
Tastykake
0.2%
282
34,373
17.9
20,882
Inventories.............................. 5.9
24,365
5.8
6,777
Retained earnings..................24.9
102,403
22.8
26,622
Costs of sales*.......................77.6
381,489
68.5
111,187
21,295
2.2
3,573
491,549
100.0
162,263
Total assets.............................
100.0
410,487
100.0
116,560
Ethics Challenge
BTN 17-3
Communicating in Practice
BTN 17-4
There is no set solution to this activity. Each teams memorandum will vary
based on the industry and companies chosen for analysis. (Instructor:
Consider making a transparency of each teams memorandum for use in a
classroom discussion of the findings.)
257
BTN 17-5
As of 12/31/2002
As of 12/31/2001
$0.07
$(0.16)
Teamwork in Action
BTN 17-6
Part 1
Team reports should look something like the following:
Horizontal Analysis
Horizontal analysis is comparing a companys financial statement amounts
across time. We compare data from comparative statements that are
horizontally aligned; that is, we compare the same items from one period to
another period. The change disclosed by the comparison is generally
expressed as a dollar amount and/or as a percent. For instance, we
compare sales of one period to sales of another and determine the dollar
amount of the increase or decrease. We also determine the percent of
increase or decrease in sales that this change represents. This type of
comparison is generally completed on a line-by-line basis for both income
statement and balance sheet items (and sometimes for other financial
statements).
Example: Sales: 2005, $240,000; 2006, $300,000. Horizontal analysis of
sales yields a $60,000 increase or 25% increase in sales. (Computation is
defined as: Amount of change / Base year [or $60,000/$240,000].)
McGraw-Hill Companies, Inc., 2005
258
Part 3
Each team member presents results to the entire team.
259
BTN 17-7
Entrepreneurial Decision
BTN 17-8
1. No. Although the current ratio improved over the three-year period, the
acid-test ratio declined and accounts receivable and merchandise
inventory turned more slowly. These conditions indicate that an increasing
portion of the current assets consisted of accounts receivable and
inventories from which current liabilities could not be paid.
2. No. The decreasing turnover of accounts receivable indicates the company
is collecting its receivables more slowly.
3. No. Sales are increasing and accounts receivable are turning more slowly.
Either or both of these trends would produce an increase in accounts
receivable, even if the other remained unchanged.
4. Yes. To illustrate, if sales are assumed to equal $100 in 2003, the sales
trend shows that they would equal $125 in 2004 and $137 in 2005. Then,
dividing each sales figure by its ratio of sales to plant assets would give
$33.33 for plant assets in 2003 ($100/ 3.0), $37.88 in 2004 ($125/ 3.3) and
$39.14 in 2005 ($137/ 3.5).
5. No. The percent of return on equity declines from 12.25% in 2003 to 9.75%
in 2005.
6. The dollar amount of selling expenses increased in 2004 and decreased
sharply in 2005. Again assuming sales figures of $100 in 2003, $125 in 2004,
and $137 in 2005, and multiplying each by its selling expense to net sales
ratio gives $15.30 of selling expenses in 2003, $17.13 in 2004, and $13.43 in
2005.
BTN 17-9
261
Global Decision
BTN 17-10