Rates of Return and Liquidity. Pam Ferrerio, vice-president of finance of Pacific Trade Company, is concerned that the company is growing too rapidly and is unable to support further growth by debt financing.

"We are enjoying an embarrassment of riches," she states. "Each month we must incur more costs to serve our ever-increasing sales. At the same time, we are increasing debt and must face the fact that we should sell more capital stock." Financial data (stated in thousands) for several years are:

\section*{Required:}
1. Calculate the earning-power ratios for each year. What is happening?
2. For each year, examine the liquidity and capital adequacy positions. Comment on your findings.
3. Do you agree with the vice-president of finance? Why or why not?

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1999 1998 1997 1996 Current assets Plant assets (net of depreciation). $1,030 $ 870 3,150 1,770 $ 720 860 $ 580 770 Total assets $4,180 $2,640 $ 1,580 $1,350 Current liabilities... $ 889 $ 550 $ 230 $ 210 Long-term notes payable 1,000 450 50 0 Shareholders' equity. 2,291 1,640 1,300 1,140 Total liabilities and equities $4,180 $2,640 $ 1,580 $1,350 Net sales.... $9,870 $4,750 $ 3,240 Cost of goods sold $7,930 $3,640 $ 2,380 Operating expenses 930 490 335 Interest expense 100 45 5 Total expenses. $8,960 $4,175 $2,720 Income before income taxes $ 910 Income taxes... 364 $ 575 230 $ 520 208 Net income $ 546 $ 345 $ 312 Additional data: Average outstanding shares 500 500 Depreciation expense $ 220 $ 140 500 $ 60 500 Current portion of long-term debt. 400 300 50 $ 0