Question: Mountain-Pacific Railroad, whose financial statements are presented in P5-9, is interested in comparing itself to the reset of the industry. Bob Cleary, the controller, has

Mountain-Pacific Railroad, whose financial statements are presented in P5-9, is interested in comparing itself to the reset of the industry. Bob Cleary, the controller, has obtained the following industry averages from a trade journal. (The industry average were the same for 2011 and 2012).

Return on equity 0.500

Current ratio 3.100

Quick ratio 1.850

Return on assets 0.300

Receivables turnover 8.150

Earnings per share (S) 41.150

Price/earnings ratio 0.451

Capital structure leverage 1.770

Profit margin 0.072

Dividend yield 0.375

Return on investment 0.102

Interest coverage 9.890

Inventory turnover 21,700

REQUIRED:

a. Compute these ratios for Mountain-Pacific Railroad for both 2011 (using year-end balances) and 2012 (using average balances where appropriate). Identify significant trends. Could the company experience solvency problems? Explain.

b. Compare the ratios of Mountain-Pacific Railroad to the industry average. Do you think the Mountain-Pacific Railroad is doing better, worse, or the same as the industry? Explain your answer, being as specific as possible.

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a Return on Equity Net Income Average Stockholders Equity 2011 294000 815000 361 2012 485000 815000 835000 2 588 Current Ratio Current Assets Current Liabilities 2011 867000 267000 3247 2012 885000 29... View full answer

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