Ratio Analysis}

Selected information from Small Company's financial statements follows.

\section*{Required:}
1. Calculate the following ratios for 2017 and 2018:

(a) gross profit margin,

(b) operating margin,

(c) net profit margin,

(d) accounts receivable turnover, and

(e) average collection period. (Note: Round answers to two decimal places.)
2. CONCEPTUAL CONNECTION For each of the first three ratios listed above, provide a plausible explanation for the year-over-year changes. (For example, why is the net profit margin higher or lower than it was the previous year?)
3. CONCEPTUAL CONNECTION Explain what each ratio attempts to measure. Make an assessment about Small Company based upon the ratios you have calculated. Are operations improving or worsening?

\section*{Case

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Fiscal Year Ended December 31 2018 2017 (in thousands) 2016 Gross sales $1,663,917 $1,697,195 $1,714,167 Less: Sales discounts (2,995) (3,055) (3,086) Less: Sales returns and allowances (2,496) (2,546) (2,571) Net sales 1,658,426 1,691,594 1,708,510 Cost of goods sold 881,876 891,027 860,512 Gross profit 776,550 800,567 847,998 Operating expenses 482,050 496,958 487,214 Operating income Other income (expenses) Net income 294,500 303,609 360,784 3,534 (3,036) (1,804) $ 298,034 $ 300,573 $ 358,980