1.

Number of Share Outstanding= 10,000 ($1 Par) Cash dividends of 1989 = Net Income After Tax - Increased Retained Earnings = 10560-(15780-10957) = $5737

Financial Ratios Analysis for 1989

Current ratio Acid Test(Quick test) Accounts receivable turnover

= 1.475x = .629x = 21.745

Inventory Turnover

= 8x

Profit Margin Gross profit Margin Asset Turnover Return On Investment Return on Equity Time Interest Earned ratio EPS P/E Ratio

= 14.17% = 41.61% = 1.48x = 21% = 81.23% = 18.45 = 1.056 = 20.83

Debt-Equity Ratio Dividend Payout Dividend Yield

= .74x = 54.33% = 2.60%

Comparison with Industry Average Financial RatiosName of Ratios/Categorized Industry Ratios 1. Liquidity measurement ratios 2. Asset measurement ratiosCurrent ratio Acid Test 1.4/1 .9/1 1989 Danhart Plumbing Ratios 1.522x .629x Medium Poor Remark

A/R Turnover Inventory Turnover Asset Turnover

8/1 5/1 1.3/1 .55/1 12

21.74 8x 1.48x .74x 18.45

Very Poor Very Strong Strong Poor Strong

3. Debt measurement ratios4. Profitability indicators ratios-

Debt-Equity Ratio TIE Ratio

Profit margin Gross profit margin ROI ROE

16% 30% 25% 10% 14 3.0% 25%

14.17% 41.61% 21% 81.23% 20.83 2.60% 54.33%

Medium Strong Medium Very Strong Strong Medium Very Strong

5. Investment valuation ratios-

P/E ratio Dividend yield Dividend payout

6. Cash flow indicator ratios-

2. Danhart Plumbing is a medium to strong company in the plumbing industry and its growing fast.

3. Danhart Plumbing problem areasThere are some problems in Danhart plumbing company and it is discussed below. Quick ratio(Acid test) is in bad shape it needs to be more stronger, otherwise company may have liquidity crisis. Quick ratio is a liquidity indicator that further refines the current ratio by measuring the amount of the most liquid current assets there are to cover current liabilities. The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash. Therefore, a higher ratio means a more liquid current position.

A/R Turnover is very poor. An accounting measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.

Debt-Equity Ratio is medium to poor condition. The debt-equity ratio is another leverage ratio that compares a company's total liabilities to its total shareholders' equity. This is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed. To a large degree, the debt-equity ratio provides another vantage point on a company's leverage position, in this case, comparing total liabilities to shareholders' equity, as opposed to total assets in the debt ratio. Similar to the debt ratio, a lower the percentage means that a company is using less leverage and has a stronger equity position.