RNA Inc. manufactures a variety of consumer products. The company’s founders have run the company for 30 years and are now interested in retiring. Consequently, they are seeking a purchaser who will continue its operations, and a group of investors, Morgan Inc., is looking into the acquisition of RNA. To evaluate its financial stability and operating efficiency, RNA was requested to provide the latest financial statements and selected financial ratios. Summary information provided by RNA is presented below and on the next page.
(a) Calculate a new set of ratios for the fiscal year 2013 for RNA based on the financial statements presented.
(b) Explain the analytical use of each of the six ratios presented, describing what the investors can learn about RNA’s financial stability and operating efficiency.
(c) Identify two limitations of ratioanalysis.