Chapter 9 P9-5 Trend Analysis

Critelli Company has provided the following comparative information:

	Year 5	Year 4	Year 3	Year 2	Year 1
Net income	$1,785,000	$1,330,000	$990,000	$768,800	$664,000
Interest expense	400,000	350,000	300,000	240,000	200,00
Income tax expense	615,000	340,000	270,000	71,200	16,000
Average total assets	9,500,000	8,000,000	6,000,000	5,200,000	4,500,000
Average stockholders equity	5,400,000	4,300,000	3,100,000	2,650,000	2,200,000

You have been asked to evaluate the historical performance of the company over the last five years.

Selected industry rations have remained relatively steady at the following levels for the last five years:

	Industry Ratios
Rate earned on total assets	15%
Rate earned on stockholders equity	18%
Number of times interest charges earned	3.5

Instructions:

1. Prepare three line graphs, with the ratio on the vertical axis and the years on the horizontal axis for the following three ratios (rounded to one decimal place):

a. Rate earned on total assets

b. Rate earned on stockholders equity

c. Number of times interest charges earned

Display both the company ratio and the industry benchmark on each graph. That is, each graph should have two lines.

2. Prepare an analysis of the graphs in question 1.