Edna Millay Inc. is a manufacturer of electronic components and accessories with total assets of $20,000,000. Selected financial ratios for Millay and the industry averages for firms of similar size are presented below.
Edna Millay | 2017 Industry |
| 2015 | 2016 | 2017 | Averages |
Current ratio | 2.09 | 2.27 | 2.51 | 2.24 |
Quick ratio | 1.15 | 1.12 | 1.19 | 1.22 |
Inventory turnover | 2.40 | 2.18 | 2.02 | 3.50 |
Net sales to stockholders’ equity | 2.71 | 2.80 | 2.99 | 2.85 |
Return on common stockholders’ equity | 0.14 | 0.15 | 0.17 | 0.11 |
Total liabilities to stockholders’ equity | 1.41 | 1.37 | 1.44 | 0.95 |
Millay is being reviewed by several entities whose interests vary, and the company’s financial ratios are a part of the data being considered. Each of the parties listed below must recommend an action based on its evaluation of Millay’s financial position.
Archibald MacLeish Bank. The bank is processing Millay’s application for a new 5-year term note. Archibald MacLeish has been Millay’s banker for several years but must reevaluate the company’s financial position for each major transaction.
Robert Penn Warren. A brokerage firm specializing in the stock of electronics firms that are sold over-the-counter, Robert Penn Warren must decide if it will include Millay in a new fund being established for sale to Robert Penn Warren’s clients.
Working Capital Management Committee. This is a committee of Millay’s management personnel chaired by the chief operating officer. The committee is charged with the responsibility of periodically reviewing the company’s working capital position, comparing actual data against budgets, and recommending changes in strategy as needed.
Instructions
b) For each of the four entities, identify two financial ratios, from the ratios presented above that would be most valuable as a basis for its decision regarding Millay.
