Continuing with this case, we move on to the ratio analysis. Using the skills practiced with the Paley discussion question, review the growth trend and use the DuPont process (ROE = ROS x AT x EM) to identify strong and weak points in preparation for Wydown’s meeting with the bank. Using the case information and the attached ratio spreadsheet, what has been the sales trend? Can you theorize on the cause(s) of the large bump in sales for 2005? Focusing on the ratios through 2006, what is the trend with Return on Equity? To which subsidiary ratios would would you trace the cause(s) of the trends observed? Going back to the case, what changes in Ceres’ business practices were likely responsible for these changes in ratio values? On the last line of p. 4 of the case discussing the GetCeres program they state ‘To protect average margins, Ceres successfully raised prices on most of its products. Were the actual margins ‘protected’ (= remained constant)? What is the status of the covenants mentioned in p. 5 of the case about the maximum long-term debt to earnings before interest taxes, deprecation and amortization (EBITDA) and the EBITDA to fixed financial charges ratio at the end of 2006? At the bottom of p. 5 of the case, it is noted that ‘sales had increased from $35.1 million in 2005 to an estimated $42.6 million in 2006’ and ‘based on limited sell-through estimates from the sales force, dealer inventories were approximately $23 million at the end of 2006, compared with $10 million in the prior year’, and that Wydown was comfortable with these figures. Would this be something to promote to the banker? Looking forward to the meeting with the bankers, what possible issues might they see and how should Wydown address them?