Horizontal Analysis and Interpretation (LO3, 4)

Selected 5-year data for the Lexington Company, a manufacturing firm, follow:

Average cash balance... $ 12,500 $ 18,400 Sales) meee aa ait cete as $432,000 Operating income...... $ 3,500 Current ratio.......... 0.23 Asset turnover ........ 0.80 Required What assessments can be made about this company’s performance and operating performance for this five-year period? Explain.

Horizontal Analysis and Interpretation El Paso Investment Brokers is considering purchasing Rio Valley. The following data are from recent

$487,000

$ 7,850 0.31 0.90

(LO3, 4)

financial statements of Rio Valley ($ thousands):

2008 SaleSaereeeniic ooo ee a $4,000 Operating income...... $1,100 Netincome@nce.. sacs. - $ 495 CGumentinatiOna, «sm.h es 72i k6)

Asset turnover ........ 1.01 Required 2009

$4,300

$1,150

$ 520 2.11 1.34 2010

$ 25,600

$539,000

$ 11,600 0.56 1.00 2010

$4,900

$1,300

$ 505 2.78 1.68

$ 62,300

$591,000

$ 94,400 OMG 1.09 2011

$4,800

$1,285

$ 490 1.96

(eas eo

$ 88,600

$642,000

$129,000 0.81 1.19 2012

$5,100

$1,425

$ 513 2.45 2.07 Determine the company’s strengths and weaknesses as evident from the information provided. Identify one type of common size application for assessing the dollar amounts for your analysis. What do you recommend regarding the purchase of Rio Valley? Explain.