Complete ratio analysis, recognizing significant differences The CEO of Dinnington Glass Company has approached Anne Hersch, the company’s accountant, for an annual financial checkup. As the first step, Anne and her team have prepared a complete set of ratios for fiscal years 2021 and 2022. She intends to use them to look for significant changes in the company’s situation from one year to the next.

a. To examine the degree of change, calculate the year-to-year proportional change by subtracting the 2021 ratio from the 2022 ratio and then dividing the difference by the year 2021 ratio. Multiply the result by 100 to get percentage change in the given ratio. Preserve the positive or negative sign to indicate the direction of change. Calculate the proportional change for all the ratios provided in the table.

b. For any ratio that shows a year-to-year difference of more than 10% in any direction (positive or negative), state whether the difference is in the company’s favor or not.

c. For the most significant changes (25% or more), identify the movement in other ratios that might provide a logical explanation for the change in the ratio you are discussing.

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Dinnington Glass Company, Financial Ratios Ratio Current ratio Quick ratio Inventory turnover Average collection period Total asset turnover Debt ratio Times interest earned ratio Gross profit margin Operating profit margin Net profit margin Return on total assets Return on common equity Price/earnings ratio Market/book ratio 2021 4.45 3.52 15.4 35.4 days 1.8 0.38 5 52% 15% 11.20% 15.60% 22% 10.2 2.75 2022 3.8 3.22 13.6 30.15 days 2.2 0.54 3.5 48% 18% 11.50% 20.21% 40% 9.4 2.43