Use the following to answer questions 1, 2, 3, 4 and 5. Calculate the financial ratios and interpret

as specified. Show your calculations.

Paradox Services Inc. (PSI, $Millions)

2014 2015

Sales $ 485.0 $ 580.0

Cost of Goods Sold 291.0 377.0

Gross Margin 194.0 203.0

Depreciation Expense 40.0 43.0

EBIT 154.0 160.0

Interest Expense 25.0 20.0

EBT 129.0 140.0

Income Tax Expense 51.6 56.0

Net Income $ 77.4 $ 84.0

Dividends $ 23.0 $ 25.0

12/31/14 12/31/15

Cash $ 40.0 $ 35.0

Receivables 45.0 52.0

Inventory 30.0 40.0

Current Assets 115.0 127.0

Gross Fixed Assets 340.0 390.0

Accumulated Depreciation ( 100.0) ( 143.0)

Net Fixed Assets 240.0 247.0

Total Assets $ 355.0 $ 374.0

Accounts Payable $ 22.0 $ 30.0

Accrued Expenses 10.0 12.0

Notes Payable 28.0 20.0

Current Liabilities $ 60.0 62.0

Long-Term Debt 102.0 55.0

Capital Stock + Paid-In Cap. 20.0 25.0

Retained Earnings 173.0 232.0

Total Liabilities and Equity $ 355.0 $ 374.0

Total Shares Outstanding 20 million 25 million

Stock Price at Year End $12.50 $14.25

1. Calculate the Current Ratio for each year. If the Companys industry average is 2.00x how would you interpret PSIs performance?

A) 1.75x for 12/31/14; 2.10x for 12/31/15;

Worse for 14 and better for 15.

B) 2.10x for 12/31/14; 3.32x for 12/31/15;

Better for both years.

C) 1.92x for 12/31/14; 2.05x for 12/31/15;

Worse for 14 and better for 15.

2. Calculate the Days Sales Outstanding for 2015. If the industry average is 33 days, how could PSIs performance be interpreted? Assume there are 280 days in PSIs fiscal year.

A) 25.10 days; worse than industry average.

B) 32.72 days; slightly better than industry average.

C) 25.10 days; better than industry average.

3. Calculate the Total Debt to Total Capital Ratio and Times Interest Earned Ratio for 2015. If the industry average ratios are 40% and 4.75x, respectively, for these ratios, how could PSIs performance be evaluated?

A) 22.59% and 8.00x; PSI uses less debt than the industry average.

B) 43.65% and 4.12x; PSI uses more debt than the industry average.

C) 12.53% and 8.00x; PSI uses less debt than the industry average.

4. Calculate the Operating Margin for 2014 and 2015. What happened in 2015 compared to 2014? How does 2015 compare to an industry average of 42.50%?

A) 0.32% for 14 and 0.28% for 15; lower than average.

B) 31.75% for 14 and 27.59% for 15; better than average.

C) 31.75% for 14 and 27.59% for 15; lower than average.

5. Calculate the Market/Book Ratio for 12/31/15 and what does it mean?

A) 1.39x; Stock price is greater than book value, which is not good.

B) 1.39x; Stock price is greater than book value, which is good.

C) 0.72x; Stock price is lower than book value, which is good.