Chapter 9 – P9-5 Trend Analysis
Critelli Company has provided the following comparativeinformation:
Year 5
Year 4
Year 3
Year 2
Year 1
Net income
$1,785,000
$1,330,000
$990,000
$768,800
$664,000
Interest expense
400,000
350,000
300,000
240,000
200,00
Income tax expense
615,000
340,000
270,000
71,200
16,000
Average total assets
9,500,000
8,000,000
6,000,000
5,200,000
4,500,000
Average stockholders’ equity
5,400,000
4,300,000
3,100,000
2,650,000
2,200,000
You have been asked to evaluate the historical performance ofthe company over the last five years.
Selected industry rations have remained relatively steady at thefollowing levels for the last five years:
Industry Ratios
Rate earned on total assets
15%
Rate earned on stockholders’ equity
18%
Number of times interest charges earned
3.5
Instructions:
1. Prepare three line graphs, with the ratio on the verticalaxis and the years on the horizontal axis for the following threeratios (rounded to one decimal place):
a. Rate earned on total assets
b. Rate earned on stockholders’ equity
c. Number of times interest charges earned
Display both the company ratio and the industry benchmark on eachgraph. That is, each graph should have two lines.
2. Prepare an analysis of the graphs in question 1.
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