Interpreting Financial Statements: Ratio Analysis
Consider Sigma Designs’ balance sheets for 1993 and 1992 (dollars in thousands). Sigma Designs is a high tech software development company specializing in imaging and multimedia computer applications.
|
Assets |
1993 |
1992 |
|
Current Assets |
||
|
Cash and equivalents |
$ 5,086 |
$ 9,283 |
|
Marketable securities |
14,326 |
19,537 |
|
Accounts receivable, net of allowances |
6,471 |
2,987 |
|
Inventories |
12,275 |
10,066 |
|
Prepaid expenses and other |
435 |
753 |
|
Income taxes receivable |
1,582 |
2,428 |
|
Total current assets |
40,175 |
45,054 |
|
Equipment, net |
1,626 |
1,607 |
|
Other assets |
2,466 |
2,388 |
|
Total assets |
$44,267 |
$49,049 |
|
Liabilities and Shareholders’ Equity |
||
|
Current liabilities |
||
|
Accounts payable |
$ 4,933 |
$ 1,826 |
|
Accrued salary and benefits |
809 |
594 |
|
Other accrued liabilities |
737 |
1,119 |
|
Total current liabilities |
6,479 |
3,539 |
|
Other long term liabilities |
— |
755 |
|
Total liabilities |
6,479 |
4,294 |
|
Shareholders’ Equity |
||
|
Common stock |
19,287 |
19,088 |
|
Retained earnings |
18,501 |
25,667 |
|
Shareholders’ equity |
37,788 |
44,755 |
|
Total liabilities and shareholders’ equity |
$44,267 |
$49,049 |
Required
a. Conduct a vertical analysis of Sigma Designs’ balance sheets. What conclusions can be drawn from these ratios?
b. Calculate the current and quick ratios for each year.
c. Does it seem that Sigma Designs has any liquidity problems? What major changes in current assets and current liabilities may contribute to these liquidity comparisons?
d. Calculate and evaluate the debt to assets ratio for Sigma Designs.
e. Concentrate on the equity section of the balance sheet. What may have caused the changes shown, as in the decrease in Retained Earnings and in Shareholders’ Equity?
f. Examine the Income Taxes Receivable section. How can a company have income taxes that are receivable and not payable? How are such receivables usually satisfied? Will the government just issue a refund check to Sigma Designs?