As 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 |
147.00% |
135.00% |
100.00% |
|
Selling expenses to sales |
10.10% |
14.00% |
15.60% |
|
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 asset turnover |
2.9 times |
2.9 times |
3.3 times |
|
Return on total assets |
10.40% |
11.00% |
13.20% |
|
Return on stockholders’ equity |
10.70% |
11.50% |
14.10% |
|
Profit margin ratio |
3.60% |
3.80% |
4.00% |
After the meeting, the company’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 expenses 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 |
Required
1. Why do you think the CEO decided to report 4 ratios instead of the 11 prepared?
2. Comment on the possible consequences of the CEO’s reporting of the ratios selected.