1.What four ratios would you use to evaluate a service business and why?

2.Reviewing Stryker Corporation's four years of ratios on page 65 of your text, what trends do you see and what are your suggestions for improvement?

3.How does Accounts Receivable Turnover relate to Number of Days Sales in Receivables?

4.What does context mean in ratio analysis and how did we use it to analyze the Stryker Corporation?

Chapter 2 Eluting Financial Performance 65 TABLE 22 Ratio Analysis of Stryker Corporation, 2009-2013, and Industry Averages, 2013 2009 2010 2011 2012 2013 Industry Average 16.8 122 15.1 18.5 17.0 162 13.0 11.7 16.5 17.4 15.6 710 70.0 18.1 7.1 Profitability ratios: Return on equity (%) Return on assets (%) Return on invested capital (%) Profit margin (%) Gross margin (%) Price-to-earnings ratio (X) Turnover-control ratios: Asset turnover (X) Fixed-asset turnover (X) Inventory turnover (X) Collection period (days) Days' sales in cash (days) Payables period (days) Leverage and liquidity ratios: Assets to equity (x) Debt to assets (%) Debt to equity (%) Times interest earned (X) Times burden covered (X) Debt to assets (market value, %) Debt to equity (market value, %) Current ratio (X) Acid test) 62.4 623 60.3 623 160.4 36.2 1502 180.7 218.4 50.2 75.3 105.9 1026 502 40.4 1.4 27.3 37.5 2.1 49.6 111.8 73,5 33.7 11.0 124 17.7 "Industry growwe firm in the medical technology industry Banner International, Beton Dick Nephew PICS Joke Medical, and Zimmer Holdings , PLC, Mark S cha Looking at Stryker's levers of performance can help explain the reasons behind its disappointing ROE. Asset turnover bears only a small part of the blame for the disappointing trend, having declined only slightly in 2013. Nor can we say that financial leverage is the villain, for although Stryker's assets-to-equity ratio is below industry peers, it is actually rising over the period. In fact, had Stryker's leverage not increased over the past five years, ROE in 2013 would have been only 9.4 percent (11.2% x 0.6 X 1.4 = 9.4%). This leaves Stryker'low and declining profit margin as the primary ex- planation for its disappointing ROE performance. Stryker's profit margin has fallen steadily from a 2010 peak of 17.4 percent to its most recent read- ing of only 11.2 percent, noticeably below the industry average of 15.6 per cent. Why the decline? Only a small part of the blame can be attributed to