Financial Statement Analysis Case Ragatz, Inc Ragatz, Inc , a drug company, reported the following information The company prepares its financial statements in accordance with GAAP 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 (a) 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 (b) 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 (c) 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

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Financial Statement Analysis Case Ragatz, Inc. Ragatz, Inc., a drug company, reported the following information. The company prepares its financial statements in accordance with GAAP.

Financial Statement Analysis Case

Ragatz, Inc.

Ragatz, Inc., a drug company, reported the following information. The company prepares its financial statements in accordance with GAAP.

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

(a)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.

(b)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.

(c)Assume you want to compare Ragatz to an IFRS company likeMerck(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?