Twin Ricky Inc. (TRI) 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, Donna Inc., is looking into the acquisition of TRI. To evaluate its financial stability and operating efficiency, TRI was requested to provide the latest financial statements and selected financial ratios. Summary information provided by TRI is presented below and on the next page.

Instructions

(a) Calculate a new set of ratios for the fiscal year 2007 for TRI based on the financial statements presented.

(b) Explain the analytical use of each of the seven ratios presented, describing what the investors can learn about TRI’s financial stability and operating efficiency.

(c) Identify two limitations of ratio analysis.

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Sales (net) Interest income TRI INCOME STATEMENT FOR THE YEAR ENDED NOVEMBER 30, 2007 (IN THOUSANDS) Total revenue $30,500 500 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 Net income 2,900 $ 4,160