Cary Corporation's forecasted 2013 financial statements follow, along with industry average ratios.
a. Calculate Cary's 2013 forecasted ratios, compare them with the industry average data, and comment briefly on Cary's projected strengths and weaknesses.
b. What do you think would happen to Cary's ratios if the company initiated cost-cutting measures that allowed it to hold lower levels of inventory and substantially decrease the cost of goods sold? No calculations are necessary. Think about which ratios would be affected by changes in these two accounts.

Cary Corporation: Forecasted Income Statement for 2013
Sales......................................................................$4,290,000
Cost of goods sold......................................................(3,580,000)
Gross operating profit...................................................$ 710,000
General administrative and selling expenses........................( 236,320)
Depreciation.............................................................( 159,000)
Miscellaneous...........................................................( 134,000)
Earnings before taxes (EBT) .........................................$ 180,680
Taxes (40%)..............................................................( 72,272)
Net income...............................................................$ 108,408
Number of shares outstanding............................................23,000
Per-Share Data
EPS............................................................................$ 4.71
Cash dividends per share...................................................$ 0.95
P/E ratio..........................................................................5.0×
Market price (average) ...................................................$23.57
Industry Financial Ratios (2013)a
Quick ratio...................................................1.0×
Current ratio...................................................2.7
Inventory turnoverb........................................5.8×
Days sales outstanding.................................32 days
Fixed assets turnoverb....................................13.0×
Total assets turnoverb.......................................2.6×
Return on assets.............................................9.1%
Return on equity..........................................18.2%
Debt ratio...................................................50.0%
Profit margin on sales.......................................3.5%
P/E ratio........................................................6.0×

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Cary Corporation: Forecasted Balance Sheet as of December 31, 2013 Cash Accounts receivable Inventories $ 72,000 Accounts and notes payable 432,000 170,000 Total current liabilities 602,000 404,290 575,000 254,710 439,000 Accruals 894,000 $1,405,000 238,000 Total current assets Land and building Machinery Other fixed assets Long-term debt Common stock 32,000 Retained earnings 61,000 Total assets 1.836,000 Total liabilities and equity $1836,000