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

RNAINC. INCOME STATEMENT FOR THE YEAR ENDED NOVEMBER 30, 2026 (IN THOUSANDS)

Sales (net) $30,500

Interest. income 500

Total revenue 31,000

Costs and expenses

Cost of goods sold 17,600

Selling and administrative expenses 3,550

Depreciation and amortization expense 1,890

Interest expense 900

Total costs and expenses 23,940

Income before taxes 7,060

Income taxes 2,800

Net income $ 4,260

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RNA INC. BALANCE SHEET As of NOVEMBER 30, (IN THOUSANDS)

2025 2026

Cash $ 400 $ 500

Short-term investments (at cost) 300 200

Accounts receivable (net) 3,200 2,900

Inventory 6,000 5,400

Total current assets 9,900 9,000

Property, plant,& equipment (net) 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 (excess of par) 1,000 1,000

Retained earnings . 5,000 4,900

Total stockholders' equity 8,700 8,600

Total liabilities and stockholders' equity $17,000 $16,000

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Selected Financial Ratios

2024 2025 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

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(a) Calculate a new set of ratios for the fiscal year 2026 for RNA based on the financial statements presented. You should present the 2026 ratios (as calculated) as a separate column so that there is a trend presented for each of the ratios for 2024, 2025, and the new 2026.

(b) Explain the analytical use of each of the six ratios presented, describing what the investors can learn about RNA's financial stability and operating efficiency through examination of the ratio trend. The meaning of the each ratio can be found in the textbook. You are encouraged to find other sources such as articles from professional journals. Be sure to cite the source of your information.

(c) Identify two limitations of ratio analysis

Should Morgan make the purchase or not?