FSA, Inc., manufactures and sells personal computers.

Manufacturing operations are conducted at

the company’s sole plant in Hoopshire, New Hampshire, where the general offices are also located.
Products are distributed nationally through such retail outlets as Abcess III and Computer Country.
Many large discount chains also handle the FSA Computers. The firm has just completed its seventh
year of operations. Your firm has audited FSA since its inception, seven years ago. Financial
statements for the past three years, along with certain industry data, are presented in the other file
(FSA Financial Statements).

One of the first companies to manufacture personal computers, FSA experienced substantial growth
during the first five years of its existence. As more companies entered the field, however, FSA’s
earnings began to decline. By its sixth year, FSA was struggling with severe cash flow problems and
the threat of a net loss. The liquidity problems were temporarily averted by negotiation a $1 million
term loan with the Hoopshire National Bank and Trust Company. The loan bears interest at 10
percent and is payable in $100,000 annual installments, beginning in 19X8.

Required:

a. Copy the comparative financial statements and add columns for expressing balance sheet
amounts as a percentage of total assets and income statement amounts as a percentage of
sales.

b. Compute the following rations for each of the three years:

1. Inventory turnover

2. Accounts receivable turnover

3. Profit margin

4. Debt: equity ratio

5. Current ratio

c. Enter the given industry averages for these rations and

1. Compare company and industry

2. Compare current and prior years

3. Identify areas requiring further investigation

4. Identify possible causes of disparities cited in 3