This activity helps students recognize the significant role accounting plays in providing financial information to management for decision making through the evaluation of financial statements. This experiential assignment requires students to use ratios to evaluate and analyze a company’s liquidity, solvency, and profitability.
Two-Rivers Inc. (TRI) manufactures a variety of consumer products. The company's founders have run the company for thirty years and are now interested in retiring. Consequently, they are seeking a purchaser, and a group of investors is looking into the acquisition of TRI. To evaluate its financial stability, TRI was requested to provide its latest financial statements and selected financial ratios. Summary information provided by TRI is presented below.
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Year 1 Year 0
Current Ratio 1.61 1.60
Quick Ratio 0.64 0.65
Times Interest Earned 8.55 8.60
Debt to Equity 0.86 0.75
Inventory Turnover 3.21 3.17
Required:
a. Calculate the select financial ratios for the fiscal year Year 2. (use excel )
b. Interpret what each of these financial ratios means in terms of TRI's financial stability and operating efficiency.
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