Triple A Office Mart

Income Statement (selected years)

1990

1989199019911992

Sales$3,800,000$4,180,000$4,850,000$6,000,000

Cost of goods sold(2,460,000)(2,975,000)(3,200,000)(4,180,000)

Gross profit$1,340,000$1,205,000$1,650,000$1,820,000

Selling, admin, and

Depreciation expenses($684,000)($820,000)($898,408)($1,015,467)

Interest(30,780)(30,780)(42,372)(35,313)

Profit before tax$625,220$354,220$709,220$769,220

Taxes(187,566)(106,266)(212,766)(230,766)

Net income$437,654$247,954$496,454$538,454

TABLE 2

Triple A Office Mart

Balance Sheet

1989199019911992

Cash$295,000$326,040$378,300$468,000

Accounts receivable11,40012,54020,70018,000

Inventory950,0001,028,5951,559,4071,735,207

Total current assets$1,256,400$1,367,175$1,958,407$2,221,207

Property, plant, equip...450,000501,600501,600503,000

Total assets$1,706,400$1,868,775$2,460,007$2,724,207

Accounts payable$152,000$167,200$190,000$300,000

Notes payable-bank...............289,776113,326

Accrued wages & taxes114,000125,000145,500180,000

Total current liabilities266,000292,200625,276593,326

Long term debt342,200342,000342,200342,200

Common stock600,000600,000600,000600,000

(120,000 shares)

Retained earnings498,200634,575892,7311,188,881

Total liabilities and equity$1,706,400$1,868,775$2,460,007$2,724,207

If the typical firm in the industry in which Triple A operates has a debt to equity ratio of 42 percent, what advice would you give Triple A concerning its debt ratio? Show the work.