Following are the auditor's calculations of several lay rations for Cragston Star Products. The primary purpose of this information to understand the client's business and assess the risk of francisure, but any other relevant conclusions are also desirable (Click the loon to view the key ratios.) te Requirement a. What major conclusions can be drawn from this information about the company's future? The company's financial position is deteriorating significanty. The company's ability to pay its bills is marginal quick ratio 0.97), and its ability to generate cash is weak (days to convert Inventory to cash 179.80 in 2019 versus 108.63 in 2016). The earings per share figure is misleading because it appears stable while the ratio of net income to common equity has been halved in two years The accounts receivable may contain a significant amount of uncollectible accounts (accounts receivable turnover ratio reduced 25% in four years), and the inventory may have a significant amount of unsalable goods included therein inventory turnover reduced 40% in four years). The company's change in inventory and accounts receivable levels has required additional borrowings. The company may probe in paying it opening and required debt pant in the near future. Requirement b. What additional information would be helpful in your assessment of this company's financial condition? Select the additional Information in the table below and then select the reason for the additional information from the following list (f an input field is not used in the table, leave the input field empty; do not select a label in either column) (Click the icon to view the reasons for the additional information.) Additional information Rasson Requirement c. Exceed can the loayretize given, which specs of the perry do you bebe should species in the ? (Sally) 1. Computation of the earnings per share figure. It appears inconsistent that eamings per share could remain relatively stable when net earnings divided by common equity has increased by 50%. This could be due to additional stock offerings during the period, or a stock split. fer una cible this inventory are added to liventory. 2. 3. Computation of the earnings per share figure. It appears inconsistent that eamings per share could remain relatively stable when net earnings divided by common equity has decreased by 50%. This could be due to additional stock offerings during the period, or a stock split. 4. Ability of the company to continue to acquire inventory replaceable or wam-out fods, and meet its debt obligations based on its curent cash postion 5. Re of the inventory valuation based on the increase in accounts receivable mover and decrease in days to colect Key Ratios 6. Reasonableness of the inventory valuation based on the decreased Inventory turnover and increased days to sell Inventory 7. Real for unlectible cut bed on the reduction in cuivre and in to collect receivables. Reasons for additional information 1. To project the cash requirements for the next several years in order to male the company's ability to meet its obliga 2. To see the company's capital investment and ability of the company to exist on its present investment. 3. To compare the comperry's ric to how the verge company in be Industry to idently possible problem areas in the company. 4. To see the collection potential and experience in accounts receivable. To compare the allowance for uncollectible accounts to the collection experience and determine the reasonableness of the allowance 5. To compare the age of the inventory to the markdown experience since the lamover had significantly. To the able of the inventory. & To indicate whether the company may have liquidity problem within the five years Ratio 2010 2018 2017 2016 2015 1. Current ratio 2.08 2.26 251 2.43 2.50 2. Quick ratio 0.97 1.34 1.82 1.76 1.54 3. Times interest earned 3.50 3.20 4.10 5.30 7.10 4. Accounts receivable turnover 4.20 5.50 4.10 640 5.60 G. Days to collect receivable 86.90 66.36 88.02 67.09 65.18 6. Inventory tumover 201 1.34 2M 3.34 3.36 7. Days to sell inventory 179.90 198.37 136.19 100.28 108.63 8. Net divided by tangible 0.68 0.64 0.73 0.00 0.67 9. Profit margin 0.13 0.14 0.16 0.15 0.14 10. Return on assets 0.00 0.00 0.12 0.10 0.09 11. Return on equity 0.05 0.05 0.10 0.10 0.11 12. Earnings per share $ 4.305 4.25 $ 4.49 $ 4.25 $ 4.14 Next