Financial Statement Analysis Case RAGATZ, INC 2017 (,000) Current liabilities $ 554,114 Convertible subordinated debt $ 648,020 Total liabilities $ 1,228,313 Stockholders' equity $ 176,413 Net income $ 58,333 Analysts attempting to compare Ragatz to drug companies that issue debt with detachable warrants may face a challenge due to differences in accounting for convertible debt INSTRUCTIONS Compute the following ratios for Ragatz, Inc (Assume that year end balances approximate annual averages ) (1) Return on assets (2) Return on common stock equity (3) Debt to assets ratio Briefly discuss the operating performance and financial position of Ragatz Industry averages for these ratios in 2017 were ROA 3 5 return on equity 16 and debt to assets 75 Based on this analysis, would you make an investment in the company's 5 convertible bonds Explain Assume you want to compare Ragatz to an IFRS company like Merck (which issues nonconvertible debt with detachable warrants) Assuming that the fair value of the equity component of Ragatz's convertible bonds is $150,000, how would you adjust the analysis above to make valid comparisons between Ragatz and Merck

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Aug 13, 2024

Financial Statement Analysis Case RAGATZ, INC. 2017 (,000) Current liabilities $ 554,114 Convertible subordinated debt $ 648,020 Total liabilities $ 1,228,313 Stockholders' equity $ 176,413

Financial Statement Analysis Case

RAGATZ, INC.

	2017 (,000)
Current liabilities	$ 554,114
Convertible subordinated debt	$ 648,020
Total liabilities	$ 1,228,313
Stockholders' equity	$ 176,413
Net income	$ 58,333

Analysts attempting to compare Ragatz to drug companies that issue debt with detachable warrants may face a challenge due to differences in accounting for convertible debt.

INSTRUCTIONS

Compute the following ratios for Ragatz, Inc. (Assume that year-end balances approximate annual averages.) (1) Return on assets. (2) Return on common stock equity. (3) Debt to assets ratio.
Briefly discuss the operating performance and financial position of Ragatz. Industry averages for these ratios in 2017 were ROA 3.5%; return on equity 16%; and debt to assets 75%. Based on this analysis, would you make an investment in the company's 5% convertible bonds? Explain.
Assume you want to compare Ragatz to an IFRS company like Merck (which issues nonconvertible debt with detachable warrants). Assuming that the fair value of the equity component of Ragatz's convertible bonds is $150,000, how would you adjust the analysis above to make valid comparisons between Ragatz and Merck?