The statements and the trend percent data indicate that the company significantly expanded its plant and equipment in 2004. Prior to that time, the company enjoyed increasing gross profit and net income. Sales grew steadily for the entire period of 2000 to 2006. However, beginning in 2004, cost of goods sold and operating expenses increased dramatically relative to sales, resulting in a significant reduction in net income. In 2006 net income was only 50.5% of the 2000 base year amount.
At the same time that net income was declining, assets were increasing. This indicates that Cohorn was becoming less efficient in using its assets to generate income. Also, the short-term liquidity of the company continued to decline. Accounts receivable did not change significantly for the period of 2004 to 2006, but cash steadily declined and merchandise inventory sharply increased, as did current liabilities.