Mountain-Pacific Railroad, whose financial statements are presented in P5-9, is interested in comparing itself to the reset

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 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.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Solvency
Solvency means the ability of a business to fulfill its non-current financial liabilities. Often you have heard that the company X went insolvent, this means that the company X is no longer able to settle its noncurrent financial...