RATIO ANALYSIS Selected information from Bigg Company’s financial statements follows.

Fiscal Year Ended December 31 2010 2009 2008

(in thousands)

Gross sales $2,004,719 $1,937,021 $1,835,987 Less: Sales discounts 4,811 4,649 4,406 Less: Sales returns and allowances 2,406 2,324 2,203 Net sales $1,997,502 $1,930,048 $1,829,378 Cost of goods sold 621,463 619,847 660,955 Gross profit $1,376,039 $1,310,201 $1,168,423 Operating expenses 577,369 595,226 583,555 Operating income $ 798,670 $ 714,975 $ 584,868 Other income (expenses) 15,973 (5,720) (8,773)

Net income $ 814,643 $ 709,255 $ 576,095 At December 31 2010 2009 2008

(in thousands)

Accounts receivable $201,290 $195,427 $182,642 Less: Allowance for doubtful accounts 2,516 2,736 2,192 Net accounts receivable $198,774 $192,691 $180,450 Required:

. Calculate the following ratios for 2009 and 2010:

a. gross profit ratio

b. operating margin ratio

c. net profit margin ratio

d. accounts receivable turnover

. For each of the first three ratios listed above, provide a plausible explanation for any differences that exist (e.g., Why is the net profit margin higher or lower than it was the previous year?, etc.).

. Explain what each ratio attempts to measure. Make an assessment about Bigg Company based upon the ratios you have calculated. Are operations improving or worsening?

Problem Set B