Thorpe Company is a wholesale distributor of professional equipment and supplies. The companys sales have averaged about

Question:

Thorpe Company is a wholesale distributor of professional equipment and supplies. The company€™s sales have averaged about $900,000 annually for the three-year period 2007€“2009. The firm€™s total assets at the end of 2009 amounted to $850,000.
The president of Thorpe Company has asked the controller to prepare a report that summarizes the financial aspects of the company€™s operations for the past three years. This report will be presented to the board of directors at its next meeting. In addition to comparative financial statements, the controller has decided to present a number of relevant that can assist in the identification and interpretation of trends. At the request of the controller, the accounting staff has calculated the following ratios for the three-year period 2007€“2009:

In preparing his report, the controller has decided first to examine the financial ratios independently of any other data to determine whether the ratios themselves reveal any significant trends over the first three-year period.
Required
a. The current ratio is increasing, while the acid-test (quick) ratio is decreasing. Using the ratios provided, identify and explain the contributing factor(s) for this apparently divergent trend.
b. In terms of the ratios provided, what conclusion(s) can be drawn regarding the company€™s use of financial leverage during the 2007€“2009 period?
c. Using the ratios provided, what conclusion(s) can be drawn regarding the company€™s net investment in plant andequipment?

Financial Ratios
The term is enough to curl one's hair, conjuring up those complex problems we encountered in high school math that left many of us babbling and frustrated. But when it comes to investing, that need not be the case. In fact, there are ratios that,...