Problem:
As a Baldwin Company controller, you are responsible for informing the board of directors about its financial activities.
At the board meeting, you present the following information.
|
2011 |
2010 |
2009 |
| Sales trend percent |
147.0% |
135.0% |
100.0% |
| Selling expense to sales |
10.1% |
14.0% |
15.6% |
| Sales to plant assets ratio |
3.8 to 1 |
3.6 to 1 |
3.3 to 1 |
| Current ratio |
2.9 to 1 |
2.7 to 1 |
2.4 to 1 |
| Acid-test ratio |
1.1 to 1 |
1.4 to 1 |
1.5 to 1 |
| Inventory turnover |
7.8 times |
9.0 times |
10.2 times |
| Accounts Receivable turnover |
7.0 times |
7.7 times |
8.5 times |
| Total assets turnover |
2.9 times |
2.9 times |
3.3 times |
| Return on total assets |
10.4% |
11.0% |
13.2% |
| Return on stockholder's equity |
10.7% |
11.5% |
14.1% |
| Profit margin ratio |
3.6% |
3.8% |
4.0% |
After the meeting, the compamy's CEO holds a press conference with analysts in which she mentions the following ratios:
|
2011 |
2010 |
2009 |
| Sales trend percent |
147.0% |
135.0% |
100.0% |
| Selling expense to sales |
10.1% |
14.0% |
15.6% |
| Sales to plant assets ratio |
3.8 to 1 |
3.6 to 1 |
3.3 to 1 |
| Current ratio |
2.9 to 1 |
2.7 to 1 |
2.4 to 1 |
Question 1: Why do you think the CEO decided to report 4 ratios instead of the 11 prepared?
Question 2: Comment on the possible consequences of the CEO's reporting of the ratios selected.