The first part of the case, presented in Chapter 2, discussed the situation of Computron Industries after an expansion program. A large loss occurred in 2010, rather than the expected profit. As a result, its managers, directors, and investors are concerned about the firm's survival.

Donna Jamison was brought in as assistant to Fred Campo, Computron's chairman, who had the task of getting the company back into a sound financial position. Computron's 2009 and 2010 balance sheets and income statements, together with projections for 2011, are shown in the following tables. The tables also show the 2009 and 2010 financial ratios, along with industry average data. The 2011 projected financial statement data represent Jamison's and Campo's best guess for 2011 results, assuming that some new financing is arranged to get the company "over the hump."

Jamison must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions should be taken. Your assignment is to help her answer the following questions. Provide clear explanations, not yes or no answers.

a. Why are ratios useful? What three groups use ratio analysis and for what reasons?
b. Calculate the 2011 current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company's liquidity position in 2009, 2010, and as projected for 2011? We often think of ratios as being useful (1) to managers to help run the business, (2) to bankers for credit analysis, and (3) to stockholders for stock valuation. Would these different types of analysts have an equal interest in the liquidity ratios?

c. Calculate the 2011 inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover. How does Computron's utilization of assets stack up against that of other firms in its industry?
d. Calculate the 2011 debt, times-interest-earned, and EBITDA coverage ratios. How doesComputron compare with the industry with respect to financial leverage? What can youconclude from these ratios?
e. Calculate the 2011 profit margin, basic earning power (BEP), return on assets (ROA),and return on equity (ROE). What can you say about these ratios?
f. Calculate the 2011 price/earnings ratio, price/cash flow ratio, and market/book ratio.Do these ratios indicate that investors are expected to have a high or low opinion of thecompany?
g. Perform a common size analysis and percentage change analysis. What do theseanalyses tell you about Computron?
h.Use the extended Du Pont equation to provide a summary and overview of Computron's financial condition as projected for 2011. What are the firm's major strengths andweaknesses?
i. What are some potential problems and limitations of financial ratio analysis?
j. What are some qualitative factors that analysts should consider when evaluating acompany's likely future financial performance?