You have just been hired as a stock analyst for a large stock brokerage company. Your first assignment is to analyze the performance of Gidley Electronics. The company€™s balance sheet for 2016 and 2017 follows.

The company€™s income statement and reconciliation of retained earnings for the years ended December 31, 2016 and 2017, are presented below.

* $1,255,000 of 2016 sales were in cash and the remainder on credit. $1,405,000 of 2017 sales were in cash and the remainder on credit.

The market prices of the company€™s stock as of January 1, 2016, December 31, 2016, and December  31, 2017, were $65, $69, and $54 per share, respectively. The January 1, 2016, balance in shareholders€™  equity was $450,000, there were no changes in the number of common shares outstanding or in accounts  receivable during 2016, and the income tax rate was 40 percent for 2016 and 2017. Total assets as of January  1, 2016, were $1,450,000. Assume the number of shares outstanding was 17,000 at year end 2015 and 2016  and 22,000 at year-end 2017.

REQUIRED:
Answer the following questions (including any relevant ratios in your answers) for both 2016 and 2017. Unless the December 31, 2015, balance is provided, assume that the December 31, 2016, balance reflects the average balance during 2016.
1. How effective is the company at managing investments made by the equity owners?
2. Is the company using debt in the best interests of the equity owners?
3. Can the company meet its current obligations using current assets? Using cash-like assets?
4. How sensitive are stock prices to changes in earnings?
5. How many days is the average account receivable outstanding? Are the days outstanding increasing or decreasing?

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2017 2016 Assets Current assets: $ 110,000 $ 115,000 Cash 220,000 Short-term investments 175,000 Accounts receivable 350,000 400,000 Inventory 290,000 240,000 Prepaid expenses 55,000 35,000 $ 980,000 $1,010,000 Total current assets Property, plant, and equipment 650,000 590,000 Less: Accumulated depreciation (165,000) (130,000) Total assets $1,465,000 $1,470,000 Liabilities and Shareholders' Equity Current liabilities: 60,000 Accounts payable 50,000 Salaries and wages payable 15,000 20,000 %24 2017 2016 Unearned revenue $ 50,000 $ 35,000 Income taxes payable 55,000 35,000 Current portion of long-term debt 110,000 135,000 Total current liabilities $ 290,000 $ 275,000 Bonds payable 380,000 440,000 Common stock 365,000 285,000 Retained earnings 430,000 470,000 Total liabilities and shareholders' equity $1,465,000 $1,470,000