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 as follows.

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? RNA Inc.? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?Income Statement? ? ? ? ? ? ? ? ? ? ? ? For the Year Ended November 30, 2021? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?(in thousands)Sales (net)...................................................................................$30,500Interest income.................................................................................500Total revenue...............................................................................31,000Costs and expensesCost of goods sold.......................................................................17,600Selling and administrative expenses..........................................3,550Depreciation and amortization expense....................................1,890Interest expense...............................................................................900Total costs and expenses...........................................................23,940Income before taxes.....................................................................7,060Income taxes..................................................................................2,800Net income..................................................................................$ 4,260

Instructions

a. Calculate a new set of ratios for the fiscal year 2021 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 ratio analysis.

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RNA Inc. Balance Sheet As of November 30 (in thousands) 2021 2020 $ 400 $ 500 Cash Short-term investments (at cost) Accounts receivable (net) 200 300 3,200 2,900 Inventory 6,000 5,400 Total current assets 9,900 9,000 Property, plant, & equipment (net) 7,100 7,000 Total assets $17,000 $ 3,700 $16,000 $ 3,400 Accounts payable Income taxes payable Accrued expenses 900 800 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) Paid-in capital in excess of par Retained earnings 2,700 2,700 1,000 1,000 4,900 5,000 Total stockholders' equity 8,700 8,600 Total liabilities and stockholders' equity $17,000 $16,000 Selected Financial Ratios Current RNA Inc. Industry Average 2020 2019 Current ratio 1.61 1.62 1.63 Acid-test ratio .64 .63 .68 Times interest earned 8.55 8.50 8.45 Profit margin on sales 13.2% 12.1% 13.0% Asset turnover 1.84 1.83 1.84 Inventory turnover 3.17 3.21 3.18