Baker & Co. has applied for a loan from the Trust Us Bank to invest in several potential opportunities. To evaluate the firm as a potential debtor, the bank would like to compare Baker & Co. to the industry. The following are the financial statements given to Trust Us Bank:

Balance Sheet 12/31/13 12/31/14

Cash $305 270

Accounts receivable 275 290

Inventory 600 580

Current assets 1,180 1,140

Plant and equipment 1,700 1,940

Less: acc depr (500) (600)

Net plant and equipment 1,200 1,340

Total assets $2,380 $2,480

Liabilities and Owners' Equity

Accounts payable $150 $200

Notes payable 125 0

Current liabilities 275 200

Bonds 500 500

Owners' equity

Common stock 165 305

Paid-in-capital 775 775

Retained earnings 665 700

Total owners' equity 1,605 1,780

Total liabilities and owners' equity $2,380 $2,480

Income Statement

Sales (100% credit) $1,100 $1,330

Cost of goods sold 600 760

Gross profit 500 570

Operating expenses 20 30

Depreciation 160 200

Net operating income 320 340

Interest expense 64 57

Net income before taxes 256 283

Taxes 87 96

Net income $169 $187

Compute the following ratios for Years 2013 and 2014 and evaluate Bakers trend: (10 pts.)

2013 2014 Industry Norms Evaluate

Current ratio 5.0

Inventory turnover 2.2

Average collection period 90 days

Debt ratio .33

Times interest earned 7.0

Net profit margin 12%

Return on equity 10.43%