Gronkowski Clothes Clutch, a retail clothier, has had average sales of $400,000 for the last five years, 2002-2006. The firm's total assets at the end of 2006 were $400,000.

 

An internal staff cost analyst has prepared the following financial data from the annual reports. You have been hired as a consultant to help analyze the financial position.

	2006	2005	2004	2003	2002
Current Ratio	2.80	2.43	2.36	2.10	2.00
Acid Test Ratio	2.03	1.93	1.82	1.61	1.47
Days' Sales in Receivables	61	58	54	42	35
Merchandise Inventory Turnover	4.20	4.10	4.10	3.90	3.70
Debt Ratio	0.48	0.50	0.49	0.47	0.47
Times Interest Earned	4.60	4.80	5.90	5.70	6.00
Sales as a Percent of 1996 Sales	1.46	1.23	1.12	1.06	1.00
Net Income as a Percent of 1996 Income	1.31	1.20	1.10	1.06	1.00
Gross Profit Margin	38.5%	38.8%	38.9%	40.0%	39.7%
Operating Expenses to Net Sales	11.4%	11.3%	11.5%	11.4%	11.7%
Net Profit Margin	7.6%	8.6%	8.9%	9.4%	9.3%
Return on Total Assets	9.4%	9.6%	9.6%	10.0%	10.7%

Required:

a.	Explain the trend in liquidity. Make specific reference to the effect of receivables and inventory on this trend.
b.	Briefly describe the trend in the long-term, debt-paying ability of The Clothes Clutch. Explain the cause(s) of this trend.
c.	The net profit margin has declined substantially. Cite and discuss specific causes of this.
d.	Has the firm utilized its total assets effectively? Discuss the ability of the firm to generate sales based on total assets. (Use DuPont analysis.)
e.	Specifically cite and briefly describe two additional types of information that would aid in your analysis.

Answer rating: 100% (QA)

a The trend in liquidity has improved over the past five years Liquidity measures the shortterm ability of a company to meet its obligations Two prima... View the full answer