As the CPA for Packard Clipper, Inc., you have been requested to develop some key ratios from the comparative financial statements. This information is to be used to convince creditors that Packard Clipper, Inc. is solvent and to support the use of going-concern valuation procedures in the financial statements.

The data requested and the computations developed from the financial statements follow:

Packard Clipper asks you to prepare a list of brief comments stating how each of these items supports the solvency and going-concern potential of the business. The company wishes to use these comments to support its presentation of data to its creditors. You are to prepare the comments as requested, giving the implications and the limitations of each item separately, and then the collective inference that may be drawn from them about Packard Clipper’s solvency and going-concern potential Having done as the client requested in the Analysis section above, prepare a brief listing of additional ratio-analysis-type data for this client which you think its creditors are going to ask for to supplement the analytical data you provided. Explain why you think the additional data will be helpful to these creditors in evaluating the client’s solvency. What warnings should you offer these creditors about the limitations of ratio analysis for the purposes stated here?

Transcribed Image Text:

2004 Current ratio 2.6 times 2003 2.1 times Acid-test ratio .8 times 1.3 times Property, plant, and equipment to stockholders' equity 2.5 times 2.2 times Sales to stockholders' equity 2.4 times 2.7 times Net income Up 32% Earnings per share $3.30 Book value per share Up 6% Down 9% $2.50 Up 9%