Ayayai 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 Ayayai. To evaluate its
financial stability and operating efficiency, Ayayai was requested
to provide the latest financial statements and selected financial
ratios. Summary information provided by Ayayai is as
follows.
Ayayai Inc. Income Statement For the Year Ended November 30, 2021 (in thousands) |
||||
Sales (net) | $ | 30,590 | ||
Interest income | 590 | |||
Total revenue | 31,180 | |||
Costs and expenses | ||||
Cost of goods sold | 17,690 | |||
Selling and administrative expenses | 3,640 | |||
Depreciation and amortization expense | 1,980 | |||
Interest expense | 990 | |||
Total costs and expenses | 24,300 | |||
Income before taxes | 6,880 | |||
Income taxes | 2,752 | |||
Net income | $ | 4,128 |
Ayayai Inc. Balance Sheet As of November 30 (in thousands) |
|||||||
2021 | 2020 | ||||||
Cash | $ | 490 | $ | 590 | |||
Short-term investments (at cost) | 390 | 290 | |||||
Accounts receivable (net) | 3,290 | 2,990 | |||||
Inventory | 6,090 | 5,490 | |||||
Total current assets | 10,260 | 9,360 | |||||
Property, plant, & equipment (net) | 7,190 | 7,090 | |||||
Total assets | $ | 17,450 | $ | 16,450 | |||
Accounts payable | $ | 3,790 | $ | 3,490 | |||
Income taxes payable | 990 | 890 | |||||
Accrued expenses | 1,790 | 1,490 | |||||
Total current liabilities | 6,570 | 5,870 | |||||
Long-term debt | 2,090 | 1,890 | |||||
Total liabilities | 8,660 | 7,760 | |||||
Common stock ($1 par value) | 2,790 | 2,790 | |||||
Paid-in capital in excess of par | 1,090 | 1,090 | |||||
Retained earnings | 4,910 | 4,810 | |||||
Total stockholders’ equity | 8,790 | 8,690 | |||||
Total liabilities and stockholders’ equity | $ | 17,450 | $ | 16,450 |
Selected Financial Ratios | ||||||||||
Ayayai Inc. |
Current Industry Average |
|||||||||
2020 | 2019 | |||||||||
Current ratio | 1.59 | 1.60 | 1.72 | |||||||
Acid-test ratio | 0.66 | 0.59 | 0.82 | |||||||
Times interest earned | 8.64 | 8.59 | 8.54 | |||||||
Profit margin on sales | 13.29 | % | 12.19 | % | 13.09 | % | ||||
Asset turnover | 1.93 | 1.92 | 1.93 | |||||||
Inventory turnover | 3.26 | 3.3 | 3.27 |
(a)
Calculate a new set of ratios for the fiscal year 2021 for Ayayai
based on the financial statements presented. (Round
answers to 2 decimal places, e.g. 52.75 or
52.75%.)
Current ratio | : 1 | |||
Acid-test ratio | : 1 | |||
Times interest earned | ||||
Profit margin on sales | % | |||
Asset turnover | times | |||
Inventory turnover | times |
Current Ratio = Current Assets / Current Liabilities
= $10260 / 6570 = 1.56 : 1
Acid-Test Ratio = (Current Assets - Inventory) / Current
Liabilities
= ($10260 - 6090) / 6570 = 0.63 : 1
Times Interest Earned = (Income before taxes + Interest Expense)
/ Interest Expense
= ($6880+990) / 990 = 7.95 times
Profit Margin on Sales = Net Income / Sales
= $4128 / 30590 = 13.49%
Asset Turnover = Sales / Average Total Assets
= $30590 / 16950 = 1.80 times
Inventory Turnover = Cost of Goods Sold / Average
Inventory
= $17690 / 5790 = 3.06 times
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Ayayai Inc. manufactures a variety of consumer products. The company’s founders have run the company for...
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