a. Using Figure 5.1: Summary of financial ratios, Exhibit 2.1: Sage Inc Consolidated Balance Sheet 2015 and 2016, and Exhibit 3.1: Sage Inc Consolidated Statement of Earnings 2015 and 2016, perform financial ratio analysis for the most recent year. Make conclusion with regard to firm's:

- Liquidity

- Asset turnover/operating efficiency

- Leverage

- Profitability

- Market value.

b. If you are the CEO of the company, what recommendations can you make to the company Board of Directors? Briefly describe your recommendations.

FIGURE 5.1 Summary of Financial Ratios Summary of Financial Statement Analysis How Use Financial Ratios Operating Market Measures Leverage Profitability Liquidity Efficiency Earnings Returns Liquidity of Current Assets Amount of Debt Short-Run Solvency Margins Coverage of Debt Asset Management per Share Return on Total Current Ratio Average Collection Period Times Interest Earned Accounts Receivable Turnover Gross Profit Margin Price! Earnings Debt Ratio Assets Cash Interest Days Inventory Held Operating Profit Margin Inventory Turnover Return on Equity Dividend Payout Quick Ratio Debt/Equity Coverage Days Payable Outstanding Cash Flow Liquidity Ratio Fixed Charge Coverage Accounts Payable Turnover Dividend Yield Net Profit Margin Cash Return on Assets Cash Conversion Cycle Long-Term Debt Total Capitalization Cash Flow Adequacy Fixed Asset Turnover Cash Flow Margin Total Asset Turnover Financial Leverage Index Return on Total Assets Analyzing the Data Would you as a bank loan officer extend $1.5 million in new credit to Sage Inc.? Would you as an investor purchase Sage Inc. common shares at the current market price of $30 per share? Would you as a wholesaler of running shoes sell your products on credit to Sage Inc.? Would you as a recent college graduate accept a position as manager-trainee with Sage Inc.? Would you as the chief financial officer of Sage Inc. authorize the opening of 25 new retail stores during the next two years? CHAPTER 2 The Balance Sheet 65 EXHIBIT 2.1 Sage Inc. Consolidated Balance Sheets at December 31, 2016 and 2015 (in Thousands) 2016 2015 $9,333 $10,386 Assets Current Assets Cash and cash equivalents Accounts receivable, less allowance for doubtful accounts of $448 in 2016 and $417 in 2015 Inventories Prepaid expenses and other assets Total current assets Property, Plant, and Equipment Land Buildings and leasehold improvements Equipment 8,960 47,041 / 512 65,846 8,350 36,769 759 56,264 811 811 18,273 21,523 40,607 11,528 29,079 270 103 $95,298 11,928 13,768 26,507 7,530 18,977 270 398 $75,909 Less accumulated depreciation and amortization Net property, plant, and equipment Goodwill Other Assets Total Assets Liabilities and Stockholders' Equity Current Liabilities Accounts payable Accrued liabilities Income taxes payable Short-term debt Current maturities of long-term debt Total current liabilities Deferred Federal Income Taxes Long-Term Debt Commitments and Contingencies (See Notes 3 and 5) Total liabilities Stockholders' Equity Common stock, par value $0.01, authorized, 10,000,000 shares; issued, 4,363,000 shares in 2016 and 4,355,000 shares in 2015, and additional paid-in capital Retained Earnings Total stockholders' equity Total Liabilities and Stockholders' Equity $14,294 4,137 1,532 5,614 1,884 27,461 843 21,059 $ 7,591 4,366 947 6,012 1,516 20,432 635 16,975 49,363 38,042 5,760 40,175 45,935 $95,298 5,504 32,363 37,867 $75,909 The accompanying notes are an integral part of these statements. EXHIBIT 3.1 Sage Inc. Consolidated Statements of Earnings for the Years Ended December 31, 2016, 2015, and 2014 (in Thousands Except per Share Amounts) 2016 2015 2014 $215,600 129,364 86,236 45,722 14,258 3,998 3,015 19,243 $153,000 91,879 61,121 33,493 10,792 2,984 2,046 11,806 $140,700 81,606 59,094 32,765 9,541 2,501 3,031 11,256 Net sales Cost of goods sold Gross profit Selling and administrative expenses Advertising Depreciation and amortization Impairment charges Operating profit Other income (expense) Interest income Interest expense Earnings before income taxes Provision for income taxes Net earnings Earnings per common share: Basic Diluted Weighted average common shares outstanding: Basic Diluted 422 (2,585) 17,080 7,686 $ 9,394 838 (2,277) 10,367 4,457 $ 5,910 738 (1,274) 10,720 4,824 $ 5,896 $ $ 2.16 2.12 $ $ 1.36 1.33 $ $ 1.36 1.33 4,359 4,429 4,350 4,442 4,342 4,431 The accompanying notes are an integral part of these statements. EXHIBIT 3.2 Sage Inc. Consolidated Statements of Earnings for Years Ended December 31, 2016, 2015, and 2014 (in Thousands Except per Share Amounts) 2016 2015 2014 Income Net sales Interest income $215,600 422 216,022 $153,000 838 153,838 $140,700 738 141,438 Costs and Expenses Cost of goods sold Marketing, administrative, and other expenses Interest expense Income taxes Net Earnings Basic Earnings per Common Share Diluted Earnings per Common Share 129,364 66,993 2,585 7,686 $ 9,394 $ 2.16 $ 2.12 91,879 49,315 2,277 4,457 $ 5,910 $ 1.36 $ 1.33 81,606 47,838 1,274 4,824 $ 5,896 $ 1.36 $ 1.33 Hello FIGURE 5.1 Summary of Financial Ratios Summary of Financial Statement Analysis How Use Financial Ratios Operating Market Measures Leverage Profitability Liquidity Efficiency Earnings Returns Liquidity of Current Assets Amount of Debt Short-Run Solvency Margins Coverage of Debt Asset Management per Share Return on Total Current Ratio Average Collection Period Times Interest Earned Accounts Receivable Turnover Gross Profit Margin Price! Earnings Debt Ratio Assets Cash Interest Days Inventory Held Operating Profit Margin Inventory Turnover Return on Equity Dividend Payout Quick Ratio Debt/Equity Coverage Days Payable Outstanding Cash Flow Liquidity Ratio Fixed Charge Coverage Accounts Payable Turnover Dividend Yield Net Profit Margin Cash Return on Assets Cash Conversion Cycle Long-Term Debt Total Capitalization Cash Flow Adequacy Fixed Asset Turnover Cash Flow Margin Total Asset Turnover Financial Leverage Index Return on Total Assets Analyzing the Data Would you as a bank loan officer extend $1.5 million in new credit to Sage Inc.? Would you as an investor purchase Sage Inc. common shares at the current market price of $30 per share? Would you as a wholesaler of running shoes sell your products on credit to Sage Inc.? Would you as a recent college graduate accept a position as manager-trainee with Sage Inc.? Would you as the chief financial officer of Sage Inc. authorize the opening of 25 new retail stores during the next two years? CHAPTER 2 The Balance Sheet 65 EXHIBIT 2.1 Sage Inc. Consolidated Balance Sheets at December 31, 2016 and 2015 (in Thousands) 2016 2015 $9,333 $10,386 Assets Current Assets Cash and cash equivalents Accounts receivable, less allowance for doubtful accounts of $448 in 2016 and $417 in 2015 Inventories Prepaid expenses and other assets Total current assets Property, Plant, and Equipment Land Buildings and leasehold improvements Equipment 8,960 47,041 / 512 65,846 8,350 36,769 759 56,264 811 811 18,273 21,523 40,607 11,528 29,079 270 103 $95,298 11,928 13,768 26,507 7,530 18,977 270 398 $75,909 Less accumulated depreciation and amortization Net property, plant, and equipment Goodwill Other Assets Total Assets Liabilities and Stockholders' Equity Current Liabilities Accounts payable Accrued liabilities Income taxes payable Short-term debt Current maturities of long-term debt Total current liabilities Deferred Federal Income Taxes Long-Term Debt Commitments and Contingencies (See Notes 3 and 5) Total liabilities Stockholders' Equity Common stock, par value $0.01, authorized, 10,000,000 shares; issued, 4,363,000 shares in 2016 and 4,355,000 shares in 2015, and additional paid-in capital Retained Earnings Total stockholders' equity Total Liabilities and Stockholders' Equity $14,294 4,137 1,532 5,614 1,884 27,461 843 21,059 $ 7,591 4,366 947 6,012 1,516 20,432 635 16,975 49,363 38,042 5,760 40,175 45,935 $95,298 5,504 32,363 37,867 $75,909 The accompanying notes are an integral part of these statements. EXHIBIT 3.1 Sage Inc. Consolidated Statements of Earnings for the Years Ended December 31, 2016, 2015, and 2014 (in Thousands Except per Share Amounts) 2016 2015 2014 $215,600 129,364 86,236 45,722 14,258 3,998 3,015 19,243 $153,000 91,879 61,121 33,493 10,792 2,984 2,046 11,806 $140,700 81,606 59,094 32,765 9,541 2,501 3,031 11,256 Net sales Cost of goods sold Gross profit Selling and administrative expenses Advertising Depreciation and amortization Impairment charges Operating profit Other income (expense) Interest income Interest expense Earnings before income taxes Provision for income taxes Net earnings Earnings per common share: Basic Diluted Weighted average common shares outstanding: Basic Diluted 422 (2,585) 17,080 7,686 $ 9,394 838 (2,277) 10,367 4,457 $ 5,910 738 (1,274) 10,720 4,824 $ 5,896 $ $ 2.16 2.12 $ $ 1.36 1.33 $ $ 1.36 1.33 4,359 4,429 4,350 4,442 4,342 4,431 The accompanying notes are an integral part of these statements. EXHIBIT 3.2 Sage Inc. Consolidated Statements of Earnings for Years Ended December 31, 2016, 2015, and 2014 (in Thousands Except per Share Amounts) 2016 2015 2014 Income Net sales Interest income $215,600 422 216,022 $153,000 838 153,838 $140,700 738 141,438 Costs and Expenses Cost of goods sold Marketing, administrative, and other expenses Interest expense Income taxes Net Earnings Basic Earnings per Common Share Diluted Earnings per Common Share 129,364 66,993 2,585 7,686 $ 9,394 $ 2.16 $ 2.12 91,879 49,315 2,277 4,457 $ 5,910 $ 1.36 $ 1.33 81,606 47,838 1,274 4,824 $ 5,896 $ 1.36 $ 1.33 Hello