Mountain-Pacific Railroad, whose financial statements are presented in P5-9, is interested in comparing itself to the rest of the industry. Bob Cleary, the controller, has obtained the following industry averages from a trade journal. (The industry averages were the same for 2011 and 2012.)
REQUIRED:
a. Compute these ratios for Mountain-Pacific Railroad for both 2011 (using year-end balances) and 2012 (using average balances where appropriate). Identify significant trends. Could the company experience solvency problems? Explain.
b. Compare the ratios of Mountain-Pacific Railroad to the industry averages. Do you think that Mountain-Pacific Railroad is doing better, worse, or the same as the industry? Explain your answer, being as specific as possible.