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Crane Plastics Company has provided the following comparative information:
2008
2007
2006
2005
2004
Net income
$ 30,000
$ 50,000
$ 100,000
$ 150,000
Interest expense
102,000
95,000
85,000
80,000
75,000
Income tax expense
9,000
15,000
30,000
45,000
Total assets (ending balance)
1,600,000
1,500,000
1,350,000
1,200,000
1,000,000
Total stockholders' equity (ending balance)
580,000
550,000
500,000
400,000
250,000
Average total assets
1,550,000
1,425,000
1,275,000
1,100,000
900,000
Average stockholders' equity
565,000
525,000
450,000
325,000
225,000
You have been asked to evaluate the historical performance of the company over the last five years. Selected industry ratios have remained relatively steady at the following levels for the last five years:
2004-2008
Rate earned on total assets
7%
Rate earned on stockholders' equity
20%
Number of times interest charges earned
3.0
Ratio of liabilities to stockholders' equity
2.0
Instructions
1. Prepare four line graphs with the ratio on the vertical axis and the years on the horizontal axis for the following four ratios (rounded to two decimal places):
a. Rate earned on total assets
b. Rate earned on stockholders' equity
c. Number of times interest charges earned
d. Ratio of liabilities to stockholders' equity
Display both the company ratio and the industry benchmark on each graph. That is, each graph should have two lines.
2. Prepare an analysis of the graphs in (1).
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