a. Calculate the following liquidity ratios for CATS for F20Y5E: current ratio and quick ratio. What can you say about the companys liquidity position in 20Y3, 20Y4, and as projected for 20Y5E? We often think of ratios as being useful: (1) to managers to help run the business, (2) to bankers for credit analysis, and (3) to stockholders for stock valuation. Would these different types of analysts have an equal interest in the liquidity ratios?

20y5E Ratio Analysis Current Quick Inventory turnover Days sales outstanding Fixed assets turnover Total assets turnover Debt ratio Liabilities-to-assets ratio Times interest earned EBITDA coverage Profit margin Basic earning power Return on assets Return on equity Price/earnings (P/E) Price/cash flow Market/Book 20y3 2.33 0.85 4.00 37.3 9.95 2.34 35.6% 54.8% 3.35 3.65 2.6% 14.2% 6.0% 13.3% 2074 1.46 0.50 3.87 39.6 6.21 2.02 59.6% 80.7% 0.10 0.76 -1.6% 0.6% -3.3% -17.1% -6.3 27.5 1.1 Industry Average 2.7 1.0 6.1 32.0 7.0 2.5 32.0% 50.0% 6.2 8.0 3.6% 17.8% 9.0% 17.9% 16.2 7.6 2.9 9.7 8.0 1.3 Other Data Stock price Shares outstanding Tax rate Lease payments 20y3 $8.50 100,000 40% $40,000 2014 $6.00 100,000 40% $40,000 20y5E $7.20 100,000 40% $40,000 | INCOME STATEMENTS FOR CATS Sales Cost of goods sold (excluding depreciation) Other expenses Depreciation and amortization Total operating costs EBIT Interest expense Pre-tax earnings Taxes (40%) Net income 2013 $ 3,432,000 2,864,000 340,000 18,900 $3,222,900 $ 209,100 62,500 $ 146,600 58,640 $ 87,960 2014 $5,834,400 4,980,000 720,000 116,960 $ 5,816,960 17,440 176,000 ($ 158,560) (63,424) ($ 95,136) ADDITIONAL DATA $ $ Stock price Shares outstanding Earnings per share (EPS) Dividends per share (DPS) Tax rate 2013 8.50 100,000 0.880 0.220 40% 2014 6.00 100,000 0.951 0.110 40% $ $ $ ta BALANCE SHEETS FOR CATS 2013 2014 $ 9,000 48,600 351,200 715,200 $ 1,124,000 491,000 146,200 $ 344,800 $ 1,468,800 7,282 20,000 632,160 1,287,360 $ 1,946,802 1,202,950 263,160 $ 939,790 $ 2,886,592 Assets: Cash Short-term investments Accounts receivable Inventories Total current assets Gross fixed assets Less: Accumulated depreciation Net fixed assets Total assets Liabilities and Equity: Accounts payable Notes payable Accruals Total current liabilities Long-term debt Common stock (100,000 shares) Retained earnings Total equity Total liabilities and equity $ 145,600 200,000 136,000 $ 481,600 323,432 460,000 203,768 $ 663,768 $ 1,468,800 $ 324,000 720,000 284,960 $ 1,328,960 1,000,000 460,000 97,632 $ 557,632 $ 2,886,592 20y5E Ratio Analysis Current Quick Inventory turnover Days sales outstanding Fixed assets turnover Total assets turnover Debt ratio Liabilities-to-assets ratio Times interest earned EBITDA coverage Profit margin Basic earning power Return on assets Return on equity Price/earnings (P/E) Price/cash flow Market/Book 20y3 2.33 0.85 4.00 37.3 9.95 2.34 35.6% 54.8% 3.35 3.65 2.6% 14.2% 6.0% 13.3% 2074 1.46 0.50 3.87 39.6 6.21 2.02 59.6% 80.7% 0.10 0.76 -1.6% 0.6% -3.3% -17.1% -6.3 27.5 1.1 Industry Average 2.7 1.0 6.1 32.0 7.0 2.5 32.0% 50.0% 6.2 8.0 3.6% 17.8% 9.0% 17.9% 16.2 7.6 2.9 9.7 8.0 1.3 Other Data Stock price Shares outstanding Tax rate Lease payments 20y3 $8.50 100,000 40% $40,000 2014 $6.00 100,000 40% $40,000 20y5E $7.20 100,000 40% $40,000 | INCOME STATEMENTS FOR CATS Sales Cost of goods sold (excluding depreciation) Other expenses Depreciation and amortization Total operating costs EBIT Interest expense Pre-tax earnings Taxes (40%) Net income 2013 $ 3,432,000 2,864,000 340,000 18,900 $3,222,900 $ 209,100 62,500 $ 146,600 58,640 $ 87,960 2014 $5,834,400 4,980,000 720,000 116,960 $ 5,816,960 17,440 176,000 ($ 158,560) (63,424) ($ 95,136) ADDITIONAL DATA $ $ Stock price Shares outstanding Earnings per share (EPS) Dividends per share (DPS) Tax rate 2013 8.50 100,000 0.880 0.220 40% 2014 6.00 100,000 0.951 0.110 40% $ $ $ ta BALANCE SHEETS FOR CATS 2013 2014 $ 9,000 48,600 351,200 715,200 $ 1,124,000 491,000 146,200 $ 344,800 $ 1,468,800 7,282 20,000 632,160 1,287,360 $ 1,946,802 1,202,950 263,160 $ 939,790 $ 2,886,592 Assets: Cash Short-term investments Accounts receivable Inventories Total current assets Gross fixed assets Less: Accumulated depreciation Net fixed assets Total assets Liabilities and Equity: Accounts payable Notes payable Accruals Total current liabilities Long-term debt Common stock (100,000 shares) Retained earnings Total equity Total liabilities and equity $ 145,600 200,000 136,000 $ 481,600 323,432 460,000 203,768 $ 663,768 $ 1,468,800 $ 324,000 720,000 284,960 $ 1,328,960 1,000,000 460,000 97,632 $ 557,632 $ 2,886,592