FINANCIAL STATEMENT ANALYSIS

RC Inc. manufactures a variety of consumer products. The companys 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, Stewart Inc, is looking into the acquisition of RC. To evaluate its financial stability and operating efficiency, RC was requested to provide the latest financial statements and selected financial ratios. Summary information provided by RC is as follows:

RC INC.

Income Statement

For the Year Ended November 30, 2015

(in thousands)

Sales (net)	30,500
Interest income	500
Total Revenue	31,000
Cost and expenses
Cost of goods sold	17,600
Selling and general administrative expenses	3,550
Depreciation and amortization expenses	1,890
Interest Expense	900
Total costs and expenses	23,940
Income before taxes	7,060
Income taxes	2,800
Net income	4,260

RC INC.

Balance Sheet

As of November 30, 2015

(in thousands)

	2015	2014
Cash	400	500
Short-term investments	300	200
Accounts receivable (net)	3,200	2,900
Inventory	6,000	5,400
Total current assets	9,900	9,000
Property, plant, and equipment	7,100	7,000
Total assets	17,000	16,000
Accounts payable	3,700	3,400
Income taxes payable	900	800
Accrued expenses	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)	2,700	2,700
Paid-in capital in excess in par	1,000	1,000
Retained earnings	5,000	4,900
Total stockholders equity	8,700	8,600
Total liabilities and equity	17,000	16,000

Selected Financial Ratios for RC, Inc.

	2014	2013	Current Industry Average
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

Question #1:

A. Calculate a new set of ratios for the fiscal year 2015 for RC 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 RCs financial stability and operating efficiency.

C. Identify and discuss three limitations of ratio analysis