As part of the analytical procedures of Mahogany Products, Inc., you perform calculations of the following ratios:
Industry AveragesAveragesMahogany ProductsProducts
Ratio2005200420052004
1. Current ratio3.303.802.202.60
2. Days to collect receivables87.0093.0067.0060.00
3. Days to sell inventory126.00121.0093.0089.00
4. Purchases divided by accounts payable11.7011.608.508.60
5. Inventory divided by current assets0.560.510.490.48
6. Operating income divided by tangible assets0.080.060.140.12
7. Operating income divided by net sales0.060.060.040.04
8. Gross profit percentage0.210.270.210.19
9. Earnings per share$14.27 $13.91 $2.09 $1.93
Required. For each of the preceding ratios:
a. State whether there is a need to investigate the results futher and, if so, the reason for further investigation.
b. State the approach you would use in the investigation.
c. Explain how the operations of Mahogany Products appear to differ from those of the industry.