Given the information presented on Sheet 1, a) Calculate the liquidity ratios for the year ended at Dec. 31, 2016. Show calculations following the table. b) Identify factors that limit the usefulness of ratio analysis.

Rain Paint

(1) Liquidity ratios

Current

Quick

(2) Solvency

Interest coverage

(3) Profitability

ROA

ROE

Rain Paint Co.
Comparative Balance Sheet
December 31, 2016 and 2015
	Dec. 31, 2016	Dec. 31, 2015
Assets
Current assets:
Cash	175,000	125,000
Temporary investments	150,000	50,000
Accounts receivable (net)	425,000	325,000
Inventories	720,000	480,000
Prepaid expenses	30,000	20,000
Total current assets	1,500,000	1,000,000
Long-term investments	250,000	225,000
Property, plant, and equipment (net)	2,093,000	1,948,000
Total assets	3,843,000	3,173,000
Liabilities
Current liabilites	750,000	650,000
Long-term liabilites:
Mortgage note payable, 10%, due 2017	410,000	-
Bonds payable, 8%, due 2020	800,000	800,000
Total long-term liabilities	1,210,000	800,000
Total liabilities	1,960,000	1,450,000
Stockholders' Equity
Preferred 8% stock, $100 par	500,000	500,000
Common stock, $10 par	500,000	500,000
Retained earnings	883,000	723,000
Total stockholders' equity	1,883,000	1,723,000
Total liabilities and stockholders' equity	3,843,000	3,173,000

Rainbow Paint Co.s comparative financial statements for the years ending December 31, 2016 and 2015, are as follows. The market price of Rainbow Paint Co.s common stock was $25 on December 31, 2016, and $30 on December 31, 2015.
Rain Paint Co.
Comparative Income Statement
For the Years Ended December 31, 2016 and 2015
	2016	2015
Sales	5,000,000	3,200,000
Cost of goods sold	3,400,000	2,080,000
Gross Profit	1,600,000	1,120,000
Selling expenses	650,000	464,000
Administrative expenses	325,000	224,000
Total operating expenses	975,000	688,000
Income from operations	625,000	432,000
Other income	25,000	19,200
	650,000	451,200
Other expense (interest)	105,000	64,000
Income before income tax	545,000	387,200
Income tax expense	300,000	176,000
Net income	245,000	211,200
Rain Paint Co.
Comparative Retainined Earnings Statement
For the Years Ended December 31, 2016 and 2015
	2016	2015
Retained earnings, January 1	723,000	581,800
Add net income for year	245,000	211,200
Total	968,000	793,000
Deduct dividends:
On preferred stock	40,000	40,000
On common stock	45,000	30,000
Total	85,000	70,000
Retained earnings, December 31	883,000	723,000