Laurel Street Inc., a retail firm, has experienced modest sales growth over the past three years but has had difficulty translating the expansion of sales into improved profitability. Using three years financial statements, you have developed the following ratio calculations and industry comparisons.

				Industry Averages
	X7	X8	X9	X9
Current ratio	2.2X	2.3X	2.3X	2.1X
Average collection period	47 days	46 days	45 days	50 days
Inventory turnover	8.1X	8.2X	8.3X	8.3X
Fixed asset turnover	3.3X	3.0X	2.7X	3.5X
Total asset turnover	1.3X	1.2X	1.1X	1.5X
Debt ratio	50%	50%	50%	54%
Times interest earned	8.1X	8.2X	8.1X	7.2X
Fixed charge coverage	5.5X	4.5X	4.0X	5.1X
Gross profit margin	43%	43%	43%	40%
Operating profit margin	8.0%	7.2%	6.3%	7.5%
Net profit margin	4.3%	4.0%	3.5%	4.2%
Return on total assets	5.7%	5.0%	3.7%	6.4%
Return on equity	11.4%	9.9%	7.4%	11.8%

1. What is the trend in the current ratio suggesting?

2. Comment on how Laurel is managing its accounts receivable and inventory.

3. Comment on Laurels long-term ability to pay its debt obligations.

4. What is the declining trend in the fixed coverage charge telling you?

5. Both the fixed and total asset turnover ratios are declining and are below the industry. What is this implying?

6. Is the declining net profit margin attributable to direct or indirect costs or both? How do you know?

7. Based on your answer to part f, what factors are these costs directly traceable to?