Ratios

1. Ratios

Ratios provide the users of financial statements with a great deal of information about the entity. Do ratios tell the whole story? How could liquidity ratios be used by investors to determine whether or not to invest in a company?

Guided Response:
Let at least two of your peers know how debt service ratios can be used by a lender in determining whether or not to lend money to a company.

2. Profit Margin
Year Ending December 2012 Year Ending December 2011 Year Ending December 2010
Revenues 40,000 35,000 33,000
Operating Expenses
Salaries 15,000 10,000 9,000
Maintenance and Repairs 6,000 9,000 10,000
Rental Expense 2,500 2,500 2,500
Depreciation 2,000 2,000 2,000
Fuel 4,000 3,500 2,500
Total Operating Expenses 29,500 27,000 26,000
Operating Income 10,500 8,000 7,000
Sales and Administrative Expenses 6,000 4,000 3,000
Interest Expense 2,500 2,000 1,000
Net Income 2,000 2,000 3,000
Above is a comparative income statement for Cecil, Inc. for the years 2010, 2011, and 2012. Calculate the profit margin for each of these years. Comment on the profit margin trend.

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