Problem 13-5A Comparative ratio analysis LO A1, P3 [The following information ap
ID: 2590891 • Letter: P
Question
Problem 13-5A Comparative ratio analysis LO A1, P3
[The following information applies to the questions displayed below.]
Summary information from the financial statements of two companies competing in the same industry follows.
Problem 13-5 Part 1
Required:
1a. 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. (Do not round intermediate calculations.)
1b. Identify the company you consider to be better short-term credit risk.
2a. 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 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.)
2b. Identify which company’s stock you would recommend as the better investment.
Company Kyan
Company Barco
Company Kyan
Company Data from the current year-end balance sheets Data from the current year’s income statement Assets Sales $ 800,000 $ 903,200 Cash $ 22,000 $ 34,000 Cost of goods sold 592,100 648,500 Accounts receivable, net 35,400 59,400 Interest expense 8,800 10,000 Current notes receivable (trade) 9,400 7,600 Income tax expense 15,377 24,935 Merchandise inventory 84,540 138,500 Net income 183,723 219,765 Prepaid expenses 5,500 7,000 Basic earnings per share 5.74 5.09 Plant assets, net 350,000 312,400 Cash dividends per share 3.78 4.03 Total assets $ 506,840 $ 558,900 Beginning-of-year balance sheet data Liabilities and Equity Accounts receivable, net $ 28,800 $ 55,200 Current liabilities $ 64,340 $ 101,300 Current notes receivable (trade) 0 0 Long-term notes payable 81,800 115,000 Merchandise inventory 59,600 109,400 Common stock, $5 par value 160,000 216,000 Total assets 448,000 412,500 Retained earnings 200,700 126,600 Common stock, $5 par value 160,000 216,000 Total liabilities and equity $ 506,840 $ 558,900 Retained earnings 137,937 80,931 Identify which company's stock you would recommend as the better investment. The better investment
Explanation / Answer
1 Currsnt ratio Current Assets / Current Liabilities 2.44 2.43 (22000+35400+9400+84540+5500)/64340 (34000+59400+7600+138500+7000)/101300 2 Acid Test Ratio Cash + Short-term investments + Current receivables / Current liabilities 1.04 1.00 (22000+0+(35400+9400))/64340 (34000+0+(59400+7600))/101300 c Accounts Receivable Turnover 21.74 14.78 Net sales / Average accounts receivable, net = Accounts receivable turnover 800000/((35400+9400+28800)/2) 903200/((59400+7600+55200)/2) d Cost of goods sold / Average inventory = Inventory turnover 8.22 5.23 592100/((84540+59600)/2) 648500/((138500+109400)/2)