CASE 1–7 As controller of Tallman Company, you are responsible for keeping the board of directors informed about the company’s financial activities. At the recent board meeting, you presented the following financial data:

2006 2005 2004 2006 2005 2004 Sales trend percent....................... 147.0% 135.0% 100.0% Accounts receivable turnover ...... 7.0 times 7.7 times 8.5 times Selling expenses to net sales ........ 10.1% 14.0% 15.6% Total asset turnover .................... 2.9 times 2.9 times 3.3 times Sales to plant assets .................... 3.8 to 1 3.6 to 1 3.3 to 1 Return on total assets ................ 9.1% 9.7% 10.4%
Current ratio ................................. 2.9 to 1 2.7 to 1 2.4 to 1 Return on stockholders’ equity.... 9.75% 11.50% 12.25%
Acid-test ratio............................... 1.1 to 1 1.4 to 1 1.5 to 1 Profit margin............................... 3.6% 3.8% 4.0%
Merchandise inventory turnover .... 7.8 times 9.0 times 10.2 times After the meeting, the company’s CEO held a press conference with analysts in which she mentions the following ratios:
2006 2005 2004 2006 2005 2004 Sales trend percent ........................ 147.0% 135.0% 100.0% Sales to plant assets ......... 3.8 to 1 3.6 to 1 3.3 to 1 Selling expenses to net sales ......... 10.1% 14.0% 15.6% Current ratio ...................... 2.9 to 1 2.7 to 1 2.4 to 1 Required:

a. Why do you think the CEO decided to report these 4 ratios instead of the 11 ratios that you prepared?

b. Comment on the possible consequences of the CEO’s reporting decision.