Discussion Questions
Answer these questions using the overview (p. 1) and 5 Exhibits (pp. 3 – 9). Write your responses
in a new thread on the board.
1. Calculate the following ratios for each year during the period 1980-1983. Comment on the
trend indicated by each ratio with respect to the financial performance and condition of the
Charter Company.
a. Profitability:
Return on average total assets (assume a 46% income tax rate)
b. Turnover:
i. Accounts receivable (based on average gross trade receivables).
ii. Inventory (based on average total inventory).
iii. Total assets (based on average total assets).
c. Liquidity:
i. Current ratio
ii. Quick ratio
d. Solvency
i. Total liabilities to total equities
ii. Total long-term debt to total long-term debt plus owner’s equity
2. The Charter Company had a number of nonrecurring and/or noncash components of
income from continuing operations in 1983. Beginning with the 1983 earnings from
continuing operations, adjust this figure for nonrecurring and/or noncash items (information
for these adjustments are included in Exhibit 1 (p. 3), Exhibit 3 (p. 6), and Exhibit 4 (pp. 7 –
8)).
3. Based on the information presented in the case, discuss the extent to which the stock
market, in the aggregate, anticipated Charter’s problems and priced its common stock
accordingly (see Exhibit 5 (p. 9)).
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