Measures of Liquidity. Denny Fink, a member of the board of directors of Egerdal Products, states that the company is becoming overextended in attempting to support a larger operation with insufficient working capital. Vera Amick, president of the company, states that results speak for themselves. Sales volume has increased, profits have increased, and return on shareholders' equity has increased. Financial data for the past three years are summarized as follows:

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1. Determine these ratios for each year:

(a) Return on sales, return on assets, and return on shareholders' equity.

(b) Current ratio, cash flow from operations per share, and earnings per share.

(c) Percentage of debt to equity and the common equity multiplier.
2. Do you share Denny Fink's concern? Or is Vera Amick's statement of assurance on target? Comment on the trends revealed by your analysis.

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Net sales. Less: 1998 $4,000,000 1997 1996 $2,000,000 $1,200,000 Cost of goods sold 3,400,000 1,600,000 900,000 Operating expenses Depreciation expense 180,000 150,000 140,000 50,000 40,000 30,000 Interest expense Income taxes. 80,000 30,000 0 120,000 70,000 60,000 Net income $ 170,000 $ 110,000 $ 70,000 Average Balances 1998 1997 1996 Current assets $1,930,000 $ 1,780,000 $ 1,680,000 Current liabilities. 1,250,000 970,000 760,000 Long-term debt. 800,000 300,000 0 Common stock ($10 par) 600,000 500,000 500,000 Retained earnings. 430,000 290,000 210,000