Connor Ltd. is a large private company owned by the Connor family. It operates a manufacturing business in northern Ontario. It has applied to the ICB bank for a new loan of $100 million to expand its manufacturing facilities.

You are a financial analyst with ICB. You have just been given an assignment to analyze Connors Year 7 financial statements and to identify any concerns about Connors performance and financial condition.

The following are financial statements for Connor Ltd. for Year 7:

BALANCE SHEETS (In 000s)
	Year 7			Year 6
Asset
Cash	$	15,000		$	38,000
Accounts receivable		215,000			202,000
Inventory		330,000			320,000
Property, plant and equipment		310,000			270,000
	$	870,000		$	830,000
Liabilities and Shareholders Equity
Accounts payable	$	210,000		$	217,000
Other accrued liabilities		70,000			58,000
Bonds payable		200,000			200,000
Common shares		175,000			180,000
Retained earnings		215,000			175,000
	$	870,000		$	830,000

INCOME STATEMENT (In 000s)
	Year 7				Year 6
Sales	$	2,000,000			$	1,950,000
Cost of goods sold		(1,370,000	)			(1,290,000	)
Gross margin		630,000				660,000
Depreciation expense		(48,000	)			(42,000	)
Other expenses		(416,000	)			(435,000	)
Income tax expense		(66,400	)			(76,860	)
Net income	$	99,600			$	106,140

Additional Information

• Connor uses the straight-line method when depreciating its property, plant, and equipment.

• Interest expense was $10,000 for Year 6 and Year 7.

Required:

(a) Convert Connors financial statements for both Year 7 and Year 6 into common-sized financial statements using: (Input all amounts as positive values. Omit $ sign in your response. Round the final answer to the nearest whole dollar.)

(i) Vertical analysis

BALANCE SHEETS
	Year 7	Year 6
Asset
Cash	$		$
Accounts receivable
Inventory
Property, plant and equipment
	$		$
Liabilities and Shareholders Equity
Accounts payable	$		$
Other accrued liabilities
Bonds payable
Common shares
Retained earnings
	$		$

INCOME STATEMENT
	Year 7	Year 6
Sales	$		$
Cost of goods sold
Gross margin
Depreciation expense
Other expenses
Income tax expense
Net income	$		$

(ii) Horizontal analysis

BALANCE SHEETS
	Year 7	Year 6
Asset
Cash	$		$
Accounts receivable
Inventory
Property, plant and equipment
	$		$
Liabilities and Shareholders Equity
Accounts payable	$		$
Other accrued liabilities
Bonds payable
Common shares
Retained earnings
	$		$

INCOME STATEMENT
	Year 7	Year 6
Sales	$		$
Cost of goods sold
Gross margin
Depreciation expense
Other expenses
Income tax expense
Net income	$		$

(c) Calculate the current ratio, debt-to-equity ratio, return on assets, and return on equity for both Year 7 and Year 6. (Enter your answers in thousands. For E.g., 1,000,000 should be entered as 1,000. Round the final answers for all the ratios to two decimal places. Omit $ sign in your response.)

	Year 7			Year 6
	$			$
Current ratio		=			=
	$			$
	$			$
Debt to equity		=			=
	$			$
	$			$
Return on assets		=	%		=	%
	$			$
	$			$
Return on equity		=	%		=	%
	$			$