Use the balance sheet form below to enter amounts you identify from the calculations on the Liquidity and Solvency Measures panel. You will identify other amounts for the balance sheet on the Profitability Measures panel. If you have a choice of two amounts, assume the first amount in the ratio is for the end of the year. Calculate any missing amounts.

Balance Sheet amounts

December 31

1	Assets
2	Current assets:
3	Cash	$823,000.00
4	Marketable securities
5	Accounts receivable (net)
6	Inventory
7	Prepaid expenses
8	Total current assets
9	Long-term investments
10	Property, plant, and equipment (net)
11	Total assets
12	Liabilities
13	Current liabilities
14	Long-term liabilities
15	Total liabilities
16	Stockholders Equity
17	Preferred stock, $10 par
18	Common stock, $5 par
19	Retained earnings
20	Total stockholders equity
21	Total liabilities and stockholders equity

Profitability Measures

Match each calculation to one of the profitability measures in the table.

Profitability Measures	Calculations
Ratio of sales to assets
Rate earned on total assets
Rate earned on stockholders' equity
Rate earned on common stockholders' equity
Earnings per share on common stock
Price-earnings ratio
Dividends per share
Dividend yield

Comparative Income Statement

Use the comparative income statement form below to enter amounts you identify from the calculations on the Liquidity and Solvency Measures panel and on the Profitability Measures panel. Calculate any missing amounts and complete the horizontal analysis columns. Enter percentages as decimal amounts, rounded to one decimal place. When rounding, look only at the figure to the right of one decimal place. If < 5, round down and if 5, round up. For example, for 32.048% enter 32.0%. For 32.058% enter 32.1%.

Comparative Income Statement

As of December 31

1		Year 2	Year 1	Amount Increase (Decrease)	Percentage Increase (Decrease)
2	Sales		$7,287,000.00
3	Cost of goods sold		3,444,000.00
4	Gross income		$3,843,000.00
5	Selling expenses		$1,457,600.00
6	Administrative expenses	1,242,000.00	1,106,000.00
7	Total operating expenses		$2,563,600.00
8	Income from operations		$1,279,400.00
9	Interest expense		120,600.00
10	Income before income tax		$1,158,800.00
11	Income tax expense		181,980.00
12	Net income		$976,820.00

Final Questions

Your accountant friend reveals that the company whose information you have been working on is actually a company he is thinking of investing in. What advice and insight do you have for your friend?

Using only the information from your horizontal analysis of the comparative income statement, complete the following sentences.

has decreased significantly from Year 1 to Year 2, even though has increased. However, has also , which slowed the increase in . In addition, has increased at a faster rate. The company appears .

Based on these observations, do you recommend that your friend invest in this companys stock?