Koester, Inc., states in its 2013 10-K fi ling with the SEC that "In October 2013, two major credit rating

agencies changed Koester's long-term credit rating outlook to negative and one of the credit rating agencies reduced Koester's short-term credit rating." Koester's financial statements (in $000) follow.

Required
a. Prepare a horizontal analysis for 2013.
b. Prepare common-size income statements for 2011, 2012, and 2013 and common-size balance sheets for 2012 and 2013.
c. Assess Koester’s liquidity.
d. Assess Koester’s profitability.
e. Assess Koester’s leverage.
f. What data do you find that supports the credit agencies’ decision to lower Koester’s creditrating?

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Koester, Inc. Comparative Income Statement For the Year Ended December 31 2013 $5,179,016 2,806,148 2,372,868 1,708,339 664,529 2012 2011 Sales revenue Cost of goods sold Gross profit Operating expenses Operating income Interest expense, net Other nonoperating (income), net Income before income tax Income tax expense Net income $5,102,786 26%,061 2,410,725 1,679,908 730,817 58,081 (23,518) 696,254 123,531 $ 572,723 $4,960,100 2,530,617 2,429,483 1,643,773 785,710 61,611 (16,755) 740,854 203,222 $537,632 42,279 (29,799) 652,049 235,030 417,019 Koester, Inc. Comparative Balance Sheet As of December 31 2013 2012 Assets Cash Accounts receivable (net) Inventory Prepaid expenses and other current assets $ 997,734 760,643 376,897 277,226 2,412,500 $1,156,835 759,033 418,633 302,649 2,637,150 Total current assets Property, plant, & equipment (net) Other assets 547,104 1,412,709 S4,372,313 586,526 1,532,816 $4,756,492 Total Assets Liabilities and Stockholders' Equity Short-term borrowings Current portion of long-term debt Accounts payable Accrued expenses Income taxes payable $ 117,994 100,000 265,936 796,473 182,782 1,463,185 525,000 282,395 807,395 $ 28,995 189,130 349,159 880,038 279,849 1,727,171 400,000 243,509 643,509 Total current liabilities Long-term debt Other Total noncurrent liabilities Stockholders' Equity Common stock, $1.00 par value Additional paid-in capital Treasury stock Retained earnings 441,369 1,589,281 935,711) 1,006,794 2,101,733 $4,372,313 441,369 1,594,332 (473,332) 823,460 2,385,812 $4,756,49.2 Total stockholders' equity Total Liabilities and Stockholders' Equity