You have just been as a stock analyst for a large stock brokerage company. Your first assignment is to analyze the performance of Gidley Electronics. The company's balance sheet for 2011 and 2012 is presented below and on the next page.

The company's income statement and reconciliation of retained earnings for the years ended December 31, 2011 and 2012, are presented below.

The market prices of the company's stock of January 1, 2011, December 31, 2011, and December 31, 2012, were $65, $69, and $54 per share, respectively. The January 1, 2011, balance in shareholders' equity was $450,000, three were no changes in the number of common shares outstanding or in accounts receivable during 2011, and the income tax rate was 40 percent for 2011 and 2012. Total assets as of January 1, 2011 was $1,450,000.REQUIRED:Answer the following questions (including any relevant ratios in your answers) for both 2011 and 2012. Unless the December 31, 2010, balance is provided, assume that the December 31, 2011, balance reflects the average balance during 2011.1. How effective is the company at managing investments made by the equity owners?2. Is the company using debt in the best interests of the equity owners?3. Can the company meet its current obligations using current assets? Using cash-like assets?4. How sensitive are stock prices to changes in earnings?5. How many days is the average account receivable outstanding? Are the days outstanding increasing ordecreasing?

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2011 2012 Assets Current assets: Cash S 10,000 S 115,000 Short-term marketable securities Accounts receivable Inventory Prepaid expenses Total current assets 220,000 400,000 240,000 35,000 $1.010,000 590.000 (130,000) $1.165.000 $1.470.000 175,000 350,000 290,000 55,000 S 980,000 Property, plant, and equipment Less: Accumulated depreciation Total assets 650,000 (165.000) Liabilities and Shareholders' Equity Current liabilities: Accounts payable Wages payable Unearned revenue Income taxes payable Current portion of long-term debt Total current liabilities Bonds payable Common stock (S10 par value) Additional paid-in capital Retained earnings Total liabilities and shareholders' equity S 60,000 S 50.000 20,000 35,000 35,000 135,000 S 275.000 440,000 15,000 50,000 55.000 110,000 S 290,000 380,000 220,000 145,000 170,000 115,000 470,000 430.000 SI,465,000 S1470,000