Crane Plastics Company has provided the following comparative information:

You have been asked to evaluate the historical performance of the company over the last five years.

Selected industry ratios have remained relatively steady at the following levels for the last five years:

2004–2008

Rate earned on total assets ..........7%

Rate earned on stockholders’ equity .....20%

Number of times interest charges earned ...3.0

Ratio of liabilities to stockholders’ equity ....2.0

Instructions

1. Prepare four line graphs with the ratio on the vertical axis and the years on the horizontal axis for the following four ratios (rounded to two decimal places):

a. Rate earned on total assets

b. Rate earned on stockholders’ equity

c. Number of times interest charges earned

d. Ratio of liabilities to stockholders’ equity

Display both the company ratio and the industry benchmark on each graph. That is, each graph should have two lines.

2. Prepare an analysis of the graphs in (1).

Transcribed Image Text:

2006 2008 $ 30,000 102,000 9,000 1,600,000 2007 2005 2004 $ 50,000 $ 100,000 $ 150,000 75,000 45,000 1,000,000 $ 150,000 Net income Interest expense Income tax expense Total assets (ending balance) Total stockholders' equity (ending balance) Average total assets Average stockholders' equity 85,000 15,000 1,500,000 45,000 1,200,000 1,350,000 500,000 1,275,000 450,000 250,000 400,000 1,100,000 325,000 1,550,000 565,000 1,425,000 525,000 900,000