Koester, Inc., states in its 2020 10-K filing with the SEC, “In October 2020, two major credit rating agencies changed Koester’s long-term credit rating outlook to negative and one of the credit rating agencies reduced Koester’s short-term credit rating.” Koester’s financial statements (in $000) follow.

Koester, Inc.

Comparative Income Statement

For the year ended December 31

Koester, Inc.

Comparative Balance Sheet

As of December 31

Required

a. Prepare a horizontal analysis for 2020. (Round amounts to 1 decimal place.)

b. Prepare common-size income statements for 2018, 2019, and 2020 and common-size balance sheets for 2019 and 2020. (Round to 1 decimal place.)

c. Assess Koester’s liquidity.

d. Assess Koester’s profitability.

e. Assess Koester’s leverage.

f. What data do you find that supports the credit agencies’ decision to lower Koester’s credit rating?

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2020 2019 2018 Sales revenue $5,179,016 $5,102,786 $4,960,100 Cost of goods sold 2,806,148 2,692,061 2,530,617 Gross profit Operating expenses 2,372,868 2,410,725 2,429,483 1,708,339 1,679,908 1,643,773 Operating income Interest expense, net Other non-operating (income), net 664,529 730,817 785,710 42,279 58,081 61,611 (29,799) (23,518) (16,755) Income before income tax 652,049 696,254 740,854 Income tax expense 235,030 123,531 203,222 Net income $ 417,019 $ 572,723 $ 537,632