Question : 151. (CMA Jun 96 #6) All-Things Inc. manufactures a variety of : 1230596

 

151. (CMA Jun 96 #6) 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 retiring. Consequently, they are seeking to sell the company. Trial Associates is looking into the acquisition of All-Things and has requested the 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 StatementFor the Year Ended May 31,Year 6(in thousands)

Sales (net)

$30,500

Interest income

       500

   Total revenue

$31,000

Costs and expenses:

 

Cost of goods sold

17,600

Selling and administrative expense

3,550

Depreciation and amortization expense

1,890

Interest expense

       900

   Total costs and expenses

$23,940

   Income before taxes

7,060

Income taxes

    2,900

   Net income

$  4,160

 

 

Selected Financial Ratios 

 

 

5-Year

 

All-Things

Industry

 

Year 4

Year 5

Average

Current ratio

1.62

1.61

1.63

Acid-test ratio

.63

.64

.68

Total asset turnover

1.83

1.84

1.84

Inventory turnover

3.21

3.17

3.18

Times interest earned

8.50

8.55

8.45

Total debt to net worth (Total debt / Total shareholders’ equity)

1.02

.86

1.03

Net profit margin

12.1%

13.2%

13.0%

 

 

 

 

 

All-Things Inc.Comparative Statement of Financial PositionAs of May 31(In thousands)

 

Year 6

Year 7

Cash

$     400

$     500

Marketable securities (at cost)

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 shareholders’ equity

$  8,700

$  8,600

   Total liabilities and shareholders’ equity

$17,000

$16,000

 

 

 

Required: 

a.

Calculate a new set of ratios for the fiscal Year 6 for All-Things Inc. based on the financial statements presented.

b.

Briefly explain the analytical use of each of the seven ratios presented, describing what the investors can learn about All-Things Inc.’s financial stability and operating efficiency.

c.

Identify two limitations of ratio analysis.

 

 

 

 

 

 

 

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