What do these ratios tell you about the companys operations

Reference no: EM13484173 , Length: 30

All-Things Inc. manufactures a variety of consumer products. The company's founders have managed the company for thirty years and are now interested in selling the company and retiring. Trist Associates is looking into the acquisition of All-Things and has requested the company's latest financial statements and selected financial ratios in order to evaluate All-Things' financial stability and operating efficiency. The summary information provided by All-Things is presented below.

All-Things Inc

Income Statement

For the Year Ended May 31, Year 3

(in thousands)

Sales	$30,500
Expenses:
Cost of goods sold	17,600
Selling and administrative expense	3,050
Depreciation and amortization expense	1,890
Interest expense	900
Total expenses	23,440
Income before taxes	7,060
Income taxes	2,900
Net income	$ 4,160

All-Things Inc.

Comparative Statement of Financial Position

As of May 31

(in thousands)

	Year 3	Year 2
Cash	$ 400	$ 500
Marketable securities	500	200
Accounts receivable, net	3,200	2,900
Inventory	5,800	5,400
Total current assets	9,900	9,000
Property, plant, and equipment, net	7,100	7,000
Total assets	$17,000	$16,000

Accounts payable	$ 3,700	$ 3,400
Income taxes payable	900	800
Accrued expenses	1,700	1,400
Total current liabilities	6,300	5,600
Long-term debt	2,000	1,800
Total liabilities	8,300	7,400
Common stock $(1 par value)	2,700	2,700
Paid-in-capital in excess of par	1,000	1,000
Retained earnings	5,000	4,900
Total stockholders' equity	8,700	8,600
Total liabilities and stockholders' equity	$17,000	$16,000

Selected Financial Ratios

		Current
	All-Things	Industry
	Year 2	Year 1	Average
Current ratio	1.61	1.62	1.63
Acid-test ratio	0.64	0.63	0.68
Inventory turnover	3.17	3.21	3.18
Times interest earned	8.55	8.50	8.45
Debt-to-equity ratio	0.86	1.02	1.03

Required:

a. Calculate the above ratios for fiscal year Year 3 for All-Things Inc.

b. What do these ratios tell you about the company's operations and ability to take on additional debt?

c. Identify two limitations of ratio analysis.

Reference no: EM13484173

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