You have been asked to evaluate the historical performance of the company over the past five years.

Merlin Company has provided the following information:

You have been asked to evaluate the historical performance of the company over the past five years. Merlin has no preferred shareholders.

Selected industry ratios have remained relatively steady at the following levels for the past five years:

__________________________________________2011-2015

Return on assets ………………………………………. 12%

Return on common shareholders’ equity ……………… 20%

Times interest earned ratio ……………………………. 2.8 times

Debt ratio ……………………………………………… 40%

Instructions

1. Prepare four line graphs with the ratio on the vertical axis and the years on the horizontal axis for the following four ratios (rounded to one decimal place):

a. Return on assets

b. Return on common shareholders’ equity

c. Times interest earned ratio

d. Debt ratio Display both the company ratio and the industry benchmark on each graph so that each graph shows two lines.

2. Prepare an analysis of the graphs in (1).