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

Fiscal Year Ended December 31 2010 2009 2008

(in thousands)

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 $ 294,500 $ 303,609 $ 360,784 Other income (expenses) 3,534 (3,036) (1,804)

Net income $ 298,034 $ 300,573 $ 358,980 At December 31 2010 2009 2008

(in thousands)

Accounts receivable $376,062 $365,109 $341,223 Less: Allowance for doubtful accounts 8,461 71,926 5,971 Net accounts receivable $367,601 $293,183 $335,252 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 Small Company based upon the ratios you have calculated. Are operations improving or worsening?

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