EXERCISE 1–1 Kampa Company and Arbor Company are similar firms that operate in the same industry. Arbor began operations in 2001 and Kampa in 1995. In 2006, both companies pay 7% interest on their debt to creditors. The following additional information is available:

KAMPA COMPANY ARBOR COMPANY 2006 2005 2004 2006 2005 2004 Total asset turnover . . . . . . 3.0 2.7 2.9 1.6 1.4 1.1 Return on total assets . . . . 8.9% 9.5% 8.7% 5.8% 5.5% 5.2%

Profit margin . . . . . . . . . . . 2.3% 2.4% 2.2% 2.7% 2.9% 2.8%

Sales . . . . . . . . . . . . . . . . . $400,000 $370,000 $386,000 $200,000 $160,000 $100,000 Write a one-half page report comparing Kampa and Arbor using the available information. Your discussion should include their ability to use assets efficiently to produce profits. Also comment on their success in employing financial leverage in 2006.

EXERCISE 1–1 Selected comparative financial statements of Cohorn Company follow:
COHORN COMPANY Comparative Income Statement ($000)
For Years Ended December 31, 2000–2006 2006 2005 2004 2003 2002 2001 2000 Sales . . . . . . . . . . . . . . . . $1,594 $1,396 $1,270 $1,164 $1,086 $1,010 $828 Cost of goods sold . . . . . 1,146 932 802 702 652 610 486 Gross profit . . . . . . . . . . . 448 464 468 462 434 400 342 Operating expenses . . . . 340 266 244 180 156 154 128 Net income . . . . . . . . . . . $ 108 $ 198 $ 224 $ 282 $ 278 $ 246 $214

CHECK Average net income, $563 COHORN COMPANY Comparative Balance Sheet ($000)
December 31, 2000–2006 2006 2005 2004 2003 2002 2001 2000 Assets Cash . . . . . . . . . . . . . . . . . . . . $ 68 $ 88 $ 92 $ 94 $ 98 $ 96 $ 99 Accounts receivable, net . . . . . 480 504 456 350 308 292 206 Merchandise inventory . . . . . . 1,738 1,264 1,104 932 836 710 515 Other current assets . . . . . . . . 46 42 24 44 38 38 19 Long-term investments . . . . . . 0 0 0 136 136 136 136 Plant and equipment, net . . . . 2,120 2,114 1,852 1,044 1,078 960 825 Total assets . . . . . . . . . . . . . . . $4,452 $4,012 $3,528 $2,600 $2,494 $2,232 $1,800 Liabilities and Equity Current liabilities . . . . . . . . . . $1,120 $ 942 $ 618 $ 514 $ 446 $ 422 $ 272 Long-term liabilities . . . . . . . . 1,194 1,040 1,012 470 480 520 390 Common stock . . . . . . . . . . . . 1,000 1,000 1,000 840 840 640 640 Other contributed capital . . . . 250 250 250 180 180 160 160 Retained earnings . . . . . . . . . . 888 780 648 596 548 490 338 Total liabilities and equ . . . . . $4,452 $4,012 $3,528 $2,600 $2,494 $2,232 $1,800 Required:

a. Compute trend percents for the individual items of both statements using 2000 as the base year.

b. Analyze and comment on the financial statements and trend percents from part a.