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In: Accounting
Financial Statement Analysis Case RAGATZ, INC. 2017 (,000) Current liabilities $ 554,114 Convertible subordinated debt $...
Financial Statement Analysis Case
RAGATZ, INC.
| 2017 (,000) | |
|---|---|
| Current liabilities | $ 554,114 |
| Convertible subordinated debt | $ 648,020 |
| Total liabilities | $ 1,228,313 |
| Stockholders' equity | $ 176,413 |
| Net income | $ 58,333 |
Analysts attempting to compare Ragatz to drug companies that issue debt with detachable warrants may face a challenge due to differences in accounting for convertible debt.
INSTRUCTIONS
- Compute the following ratios for Ragatz, Inc. (Assume that year-end balances approximate annual averages.) (1) Return on assets. (2) Return on common stock equity. (3) Debt to assets ratio.
- Briefly discuss the operating performance and financial position of Ragatz. Industry averages for these ratios in 2017 were ROA 3.5%; return on equity 16%; and debt to assets 75%. Based on this analysis, would you make an investment in the company's 5% convertible bonds? Explain.
- Assume you want to compare Ragatz to an IFRS company like Merck (which issues nonconvertible debt with detachable warrants). Assuming that the fair value of the equity component of Ragatz's convertible bonds is $150,000, how would you adjust the analysis above to make valid comparisons between Ragatz and Merck?
Solutions
ekkarill92 answered 2 years agoRelated Solutions
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December 31, 2020
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Accounts payable
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Accounts receivable
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Notes payable
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Charitable contributions 180,000
Interest income on tax-exempt bonds 40,000
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