Part 1: For both companies compute the ( a ) current ratio, ( b ) acid-test rati
ID: 2468422 • Letter: P
Question
Part 1:
For both companies compute the (a) current ratio, (b) acid-test ratio, (c) accounts (including notes) receivable turnover, (d) inventory turnover, (e) days’ sales in inventory, and (f) days’ sales uncollected.
Part 2:
Identify the company you consider to be better in managing short-term credit risk.
Part 3:
For both companies compute the (a) profit margin ratio, (b) total asset turnover, (c) return on total assets, and (d) return on common stockholders’ equity. Assuming that each company paid cash dividends of $4.50 per share and each company’s stock can be purchased at $85 per share, compute their (e) price-earnings ratios and (f) dividend yields. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Part 4:
Identify the company you consider to be better in managing short-term credit risk.
Part 3:
Explanation / Answer
Solution.
(a) current ratio
For BARCO company = 163,340 / 66,340 = 2.46
For KYAN compony = 242,700 / 99,300 = 2.44
(b) acid-test ratio
For BARCO company = (163,340 - 84,940 ) / 66,340 = 1.18
For KYAN compony = (242,700 - 134,500 ) / 99,300 = 1.08.
(c) accounts (including notes) receivable turnover,
For BARCO company = 790,000 / 33,600 = 23.51
For KYAN compony = 918,200 / 55,800 = 16.45..
(d) inventory turnover,
For BARCO company = 588,100 / 72,270 = 8.13
For KYAN compony = 648,500 / 124,950 = 5.19.
(e) days’ sales in inventory,
For BARCO company = (84,940 / 588,100) x 365 = 52.71
For KYAN compony = (134,500 / 648,500) x 365 = 75.70.
.(f) days’ sales uncollected.
For BARCO company = (40,400 / 790,000 ) x 365 = 18.66
.For KYAN compony = (56,400 / 918,200) x 365 = 22.41.