BTN 17-3 As Beacon Company controller, you are responsible for informing the boa

Question

BTN 17-3 As Beacon Company controller, you are responsible for informing the board of directors about ts tinancial activities. At the board meeting. you present the following information CHALLENGE 2017 2016 2015 100.0% 15.6% Sales trend percent Selling expenses to sales sales to plant assets ratio. . … Current ratio.. Acid-test ratio Inventory turnover Accounts receivable turnover 147.0% 135.0% 14.0% 3.8 to 1 2.9 to 1 1.1 to 1 7.8 times 7.0 times 3.6 to 1 2.7 to 1 1.4 to 1 9.0 times 7.7 times 2.9 times 11.0% 11.5% 3.8% 3.3 to 1 2.4 to 1 1.5 to 1 10.2 times 8.5 times 3.3 times 13.2% 14.1% 4,0% Return on total assets. Return on stockholders' equity_... Profit margin ratio. 10.4% 10.7% 3.6% After the meeting, the company's CEO holds a press conference with analysts in which she mentions the following ratios 2015 2017 147.0% 10.1% 3.8 to 1 2016 135.0% 14.0% 3.6 to 1 2.7 to 1 100.0% 15.6% 3.3 to 1 2.4 to 1 Sales trend percent Sales to plant assets ratio Current ratio.. ..2.9 to 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.

Explanation / Answer

Solution:-

BTN 17-3:-

1. Why do you think the CEO decided to report the above 4 ratios instead of the 11 prepared:-

The above 4 ratios all suggest different aspects such as profitability, liquidity, efficiency are improving and suggest the company is likely to have a bright future. While the other 7 ratios show a decreasing trend of the company. So when only 4 ratios are reported to the public, this may bring a positive stimulation to the stock price and increase the confidence of the investors. Moreover, does not report those 7 ratios can hide the truth that part company is deteriorating so as to increase its credibility. It has a greater chance to get loan from the bank later.

2. Comment on the possible consequences of the CEO’s reporting of the ratios selected:-

Selectively reporting ratios is actually hiding of the real situation from the company’s stakeholders.The stakeholders are who can affect or be affected by the company. Therefore, this is an unethical and moral behavior which will negatively influence the reputation and credibility of the company. In the foreseeable future, the customers may stop purchasing good and services from the company and finally the company may lead to loss in operation. Moreover, the company may harder to attract investor to contribute their capital in the company that failed the report the real situation of the company in the pass.

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