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Question 1 (25 Marks)

U&ME Bhd manufactures a variety of consumer products. The companys 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, M&M Bhd is looking into the acquisition of U&ME. To evaluate its financial stability and operating efficiency, U&ME was requested to provide the latest financial statements and selected financial ratios. Summary information provided by U&ME is presented below and on the next page.

U&ME BHD Statement of Comprehensive Income For The Year Ended December 31, 2015 (In Thousands)
RM
Sales (Net)	30,500
Interest income	500
Total Revenue	31,000
Costs and Expenses
Cost of goods sold	17,600
Selling and administrative expenses	3,550
Depreciation and amortization expenses	1,890
Interest expenses	900
Total costs and expenses	23,940
Income before taxes	7,060
Income taxes	2,800
Net Income	4,260

U&ME BHD Statement of Financial Position For The Year Ended December 31, 2015 (In Thousands)
	2014	2015
	RM	RM
Cash	400	500
Short-term investments (at cost)	300	200
Account receivable (net)	3,200	2,900
Inventory	6,000	5,400
Total current assets	9,900	9,000
Property,Plant & Equipment (net)	7,100	7,000
Total assests	17,000	16,000
Accounts payable	3,700	3,400
Income taxes payables	900	800
Accrued expenses	1,700	1,400
Total current liabilities	6,300	5,600
Long term debt	2,000	1,800
Total liabilities	8,300	7,400
Common stock (Rm 1 par value)	2,700	2,700
Paid in capital in excess of par	1,000	1,000
Retained earnings	5,000	4,900
Total stockholders equity	8,700	8,600
Total liabilities and stockholders equity	17,000	16,000

Selected Financial Ratios
	U&ME Bhd		Current Industry Average
	2015	2014
Current ratio	1.61	1.62	1.63
Acid test ratio	.64	.63	.68
Times interest earned	8.55	8.50	8.45
Profit margin on sales	13.2%	12.1%	13.0%
Asset turnover	1.84	1.83	1.84
Inventory turnover	3.17	3.21	3.18

Required :

1. Calculate a new set of ratios for the fiscal year 2016 for U&ME based on the financial statements presented.

2. Explain the analytical use of each of the six ratios presented, describing what the investors can learn about U&MEs financial stability and operating efficiency.

3. idenentify two limitations of ratio analysis.

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