Analysis of a company's financial statements:Below are simplified versions of the balance sheet and income statement forToys by Tom, Inc.Use this information to answer question 10.

A 15% increase in inventory turns forToys by Tom, Inc.would bring this ratio to ____, suggesting ________ in ________.

• 109 days; a deterioration; profitability
• 3.9 days; a deterioration; profitability
• 4.8 times; an improvement; efficiency
• 3.9 times; an improvement; efficiency

TOYS BY TOM Balance Sheet TOYS BY TOM Income Statement For year ending December 31, 2006 For year ending December 31, 2006 Assets Liabilities & Owners' Equity Sales $ 12.00 Current Assets Current Liabilities 5 Less: COGS 8.40 Cash 0.50 Current portion, LTD 0.75 Less: Depreciation 0.80 Accounts receivable 1.00 Accounts payable 2.50 Gross profit 2.80 Inventories 2.50 Other accrued expenses 1.75 Less: SG&A 1.20 Total current assets 4.00 Revolving credit, bank 2.00 Operating profit 1.60 Net fixed assets 10.00 Total current liabilities 7.0 Less: Interest expense 0.25 Long-term (mortgage) debt 2.50 Profit before tax 1.35 Net worth 4.50 Less: Income taxes 0.54 Net Income Total Assets $ 14.00 $ 14.00 $ 0.81 Total Liab. & Net Worth * Items in $1,000 * Items in $1,000