Ratio 2011 2010 2011 2010 1 Current ratio 3.30 3.80 2.20 2.60 2.Days to collect receivables 87.00 93.00 67.00 60.00 3. Days to sell inventory 126.00 121.00 93.00 89.00 4. Purchases divided by accounts payable 11.70 11.60 8.50 8.60 5. Inventory divided by current assets 56 .51 .49 48 6. Operating income divided by tangible .08 . 06 .14 12 assets 7. Operating income divided by net sales 06 06 .04 .04 8 Gross profit percent .21 .27 .21 .19 9. Earnings per share $ 14.27 $ 13.91 $2.09 $ 1.93 Required For each of the preceding ratios : a. State whether there is a need to investigate the results further and , if so , the reason for further investigation b . State the approach you would use in the investigation C . Explain how the operations of Mahogany Products appear to differ from those of the industry Answer a. and b. Ratio Need for number investigation Reason for investigation Nature of investigation Yes Current ratio has decreased Obtain explanation for the decrease from previous year and is in current ratio and investigate the significantly lower than the effect on the company's ability to industry averages. This could operate, obtain needed financing, indicate a shortage of working and meet the requirements of its debt capital required agreements com petition in this industry. 2 . Yes An increase in the amount of Determine the cause of the change in e required to collect the time to collect and evaluate the receivables provides less cash long-term effect on the company's with which to pay bills. This ability to collect receivables and pay change could represent a its bills. The difference between the change in the collection policy , company's and the industry's days to which could have a significant collect could indicate a more strict effect on the company in the credit policy for the company. The future . It may also indicate that investigation of this possibility could a larger allowance for indicate that the company is uncollectible accounts may be forfeiting a large number of sales and needed if accounts receivable lead to a recommendation for a are less collectible than in more lenient credit policy. 2011