Chapter IE, Problem 10IE

Financial Statement Ratio Analysis

Refer to the information pertaining to Endless Mountain Company that is provided in Integration Exercise S. In addition to the budget schedules that you prepared in Integration Exercise 8, insert a new tab in your Microsoft Excel worksheet titled "Ratio Analysis."

Required (For all questions, be sure to use formulas that link to the other tabs in your Microsoft Excel worksheet when performing your calculations):

1. To help assess the company's liquidity, calculate the following at December 31, 2017:

 a. Working capital,

 b. Current ratio.

2. To help assess the company's asset management, calculate the following for 2017:

 a. Accounts receivable turnover.

 b. Average collection period.

 c.Inventory turnover.

 d.Average sale period.

 e. Operating cycle.

3. To help assess the company's debt management, calculate the following for 2017:

 a. Times interest earned ratio.

 b. Equity multiplier.

4. To help assess the company's profitability, calculate the following for 2017:

 a.Net profit margin percentage.

 b. Return on equity.

5. For each of the measures and ratios that you computed in requirements 1 through 4, indicate whether, generally speaking, management would prefer to see it increase or decrease over time. Support each answer with an explanation.