P3-27 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 com- plete set of ratios for fiscal years 2017 and 2018. She intends to use them to look for significant changes in the company's situation from one year to the next. Dinnington Glass Company, Financial Ratios Ratio 2017 2018 Current ratio 4.45 3.8 Quick ratio 3.52 Inventory turnover 13.6 Average collection period 35.4 days 30.15 days Total asset turnover 2.2 Debe ratio 0.38 0.34 Times interest earned ratio Gross profit margin 52% Operating profit margin 15% 18% 3.22 15.4 1.8 5 3.5 48% TWO Financial Tools Dinnington Glass Company, Financial Ratios (Continued) Ratio 2017 2018 Net profit margin 11.20% 11.50% Return on total assets 15.60% 20.21% Return on common equity 22% 40% Pricelarnings ratio 10.2 9.4 Market book ratio 2.75 2.43 a. To examine the degree of change, calculate the year-to-year proportional change by subtracting the 2017 ratio from the 2018 ratio and then dividing the difference by the year 2017 ratio. Multiply the result by 100 to get percentage change in the given ratio. Preserve the positive or negative sign to indicate the dirextion 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