By comparing the two years, the ratios can point out significant discrepancies from year to year. For example, in 1986 the current ratio decreased from 36.55:1.00 in 1985 to 0.0977:1.00. The current ratio shows a company with no cash in 1986 despite record "revenues" (red flag). Also, the debt to equity ratio increased from 0.017:1.00 in 1985 to 1.486:1.00 in 1986 (an 8600% increase). Moreover, the return on equity decreased by more than 75%.
Selected Ratios (www.aicpa.org): 1985 1986
Current ratio of assets to liabilities 36.552 .0977
Working capital: Total assets 0.5851 (0.0080)
Collection ratio N/A 26.131
Asset turnover .144 1.041
Debt to equity ratio .017 1.486
Receivables turnover N/A 6.984
Times interest earned N/A 43.136
Cost of sales: Sales .465 .423
Gross margin percentage 53.51% 57.68%
Return on equity 183.75%