Financial Statement Analysis Case 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. The following is summary information provided by RNA.

Instructions

(a) Calculate a new set of ratios for fiscal year 2015 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.

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RNA INCOME STATEMENT FOR THE YEAR ENDED NOVEMBER 30, 2015 (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 Net income 2,800 4,260