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 presented below and on the next page.

Instructions(a) Calculate a new set of ratios for the fiscal year 2013 for RNA 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 RNA's financial stability and operating efficiency.(c) Identify two limitations of ratio analysis.

Transcribed Image Text:

RNA INC. INCOME STATEMENT FOR THE YEAR ENDED NOVEMBER 30, 2013 (IN THOUSANDS) $30,500 500 Sales (net) Interest income Total revenue 31,000 Costs and expenses Cost of goods sold Selling and administrative expenses Depreciation and amortization expense Interest expense 17,600 3,550 1,890 900 Total costs and expenses 23,940 Income before taxes 7,060 Income taxes 2,800 $ 4,260 Net income RNA INC. BALANCE SHEET As OF NOVEMBER 30 (IN THOUSANDS) 2013 2012 Cash Short-term investments (at cost) Accounts receivable (net) Inventory 24 400 500 300 200 3,200 2,900 5,400 6,000 9,000 7,000 Total current assets 9,900 Property, plant, & equipment (net) 7,100 $17,000 $16,000 Total assets