Exhibit 19-8
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

question 42

Multiple Choice

Exhibit 19-8
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Zeco Company has the following financial statements for year ending 12/31/2009. $\begin{array}{lr}\text { Sales } & 1,000,000 \\\text { Cost of Goods Sold } & \underline{750,000 }\\\text { Gross Profit } & 250,000 \\\text { Depreciation } & 100,000 \\\text { Operating Expenses } & 70,000 \\\text { Administration Exp. } & \underline{65,000} \\\text { Operating Profit } & 15,000 \\\text { Interest Expense }\\\\\text { Profit Before Taxes } & \underline{8,000} \\\text { Taxes } & 7,000 \\\\& \underline{2,800} \\\text { Net Income }& 4,200 \\\text { Dividends } & 3,200 \\\end{array}$ $\begin{array}{c}\begin{array}{lll}\text { Assets }\\\hline \text { Cash } & 50,000 \\\text { Accounts Receivable } & 250,000 \\\text { Inventory } & \underline { 325,000} \\ \quad \text { Total Current Assets } & 825,000 \\\text { Net Fixed Assets } & \underline { 450,000} \\ \text { Total Assets } & 1,275,000\\\\\end{array}\begin{array}{lll}\text { Liablities }\\\hline \text { Notes Payable } & 250,000 \\\text { Accounts Payable } & \underline { 350,000} \\ \text { Total Current Liab. } & 800,000 \\\text { Long Term Debt } & 225,000 \\\text { Common Stock } & 200,000 \\\text { Retained Earnings } & \underline { 50,000 }\\ \text { Total Liab. \& Earnings } & 1,275,000\end{array}\end{array}$
The Zeco Company's industry averages are as follows:
Net Profit Margin = 4.5%; Total Asset Turnover = 0.8; Total Assets/ Equity = 1.5
-Refer to Exhibit 19-8. Based on this information what are the strengths and concerns of Zeco Company?

• A) Zeco needs to lower its leverage and improve profitability and efficiency.
• B) Zeco needs to increase its leverage and improve efficiency.
• C) Zeco needs to lower its leverage and improve efficiency.
• D) Zeco needs to lower its leverage and improve profitability.
• E) Zeco needs to increase its leverage and improve profitability.

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Definitions:

Absenteeism

Absenteeism is the frequent absence from work or other obligations without valid reasons, affecting productivity and efficiency.

Gain-Sharing Plans

Incentive plans that reward employees for contributing to a company's increased productivity or profitability.

Current Distribution

The process or manner by which resources, earnings, or assets are apportioned at the present time.

Cash Plan

A type of health insurance plan that covers everyday medical expenses and provides cash payments for specified conditions or treatment.