Calculate and analyze financial ratios. (LO 3)

Given the information below from a firm's financial statement:

\section*{Required}

a. Calculate the following ratios for 2009 and 2008:
1. Current ratio 2. Acid-test ratio (assume no short-term investments)
3. Working capital 4. Accounts receivable turnover ratio 5. Debt-to-equity ratio 6. Times-interest-earned ratio 7. Return on equity 8. Gross profit percentage

b. Suppose the changes from 2008 to 2009 in each of these ratios were consistent with the direction and size of the change for the past several years. For each ratio, explain what the trend in the ratio would indicate about the company.

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Year ended December 31, (in thousands) 2009 2008 2007 Net sales (all on account) Cost of goods sold Gross profit Interest expense Income taxes $5,003,837 $4,934,430 2,755,323 2,804,459 2,248,514 2,129,971 61,168 71,971 186,258 167,239 Net income $ 303,860 $ 272,864 Cash and cash equivalents $ 18,623 $ 19,133 $ 3,530 Accounts receivable, less allowance 606,046 604,516 546,314 Total current assets Total assets 1,597,377 1,547,290 1,532,253 4,052,090 4,065,462 4,035,801 Total current liabilities 1,189,862 1,111,973 44,539 Long-term liabilities Total shareholders' equity* *The firm has no preferred stock. 1,163,696 1,237,549 1,698,532 1,715,940 1,592,180