P10-8A. Calculate and analyze financial ratios, (LO 3)
You are interested in investing in Reese Company, and you have obtained the balance sheets for the company for the past 2 years.
| Reese Company | ||
| 2007 | 2005 | |
| Current assets: | ||
| Cash | $198,000 | $90,000 |
| Accounts receivable net | 210,000 | 116,000 |
| Inventory | 270,000 | 1 60,000 |
| Prepaid rent | 15,000 | 16,000 |
| Total current assets | 693,000 | 382,000 |
| Equipment net | 280,000 | 250,000 |
| Total assets | $973,000 | $642,000 |
| Total current liabilities | $306,000 | $223,000 |
| Long- term liabilities | 219,000 | 117,000 |
| Total liabilities | 525,000 | 340,000 |
| Common stockholder’s equity | 150,000 | 90,000 |
| Retained earnings | 298,000 | 212,O00 |
| Total liabilities and stockholder’s equity | $973,000 | $642,000 |
The following amounts were reported on the income statement for the year ended June 30, 2007.
| Sales | $450,000 |
| Cost of goods sold | 215,000 |
| Interest expense | 7,500 |
| Net income | 80,000 |
Required
a. Compute as many of the financial statement ratios you have studied as possible with the information provided for Reese Company. Some ratios can be computed for both years and others can be computed for only 1 year.
b. Would you invest in Reese Company? Why or why not? What additional information would be helpful in making this decision?
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