Selected financial data for Red Corporation and Blue Stores, Inc. for 2001 are p
ID: 2351661 • Letter: S
Question
Selected financial data for Red Corporation and Blue Stores, Inc. for 2001 are presented here (in millions).Red Corporation Blue Stores, Inc.
Income Statement
Data for Year
Net sales $74,431 $448,364
Cost of goods sold 50,667 339,699
Selling and administrative expenses 18,409 82,305
Interest expense 736 2,326
Other income (expense) 1,164 -1,336
Income tax expense 2,199 8,185
Net income $3,584 $14,513
Balance Sheet Data
(End of Year)
Current assets $15,383 $48,765
Noncurrent assets 31,819 113,781
Total assets $47,202 $162,546
Current liabilities $13,294 $53,931
Long-term debt 9,099 37,866
Total stockholders' equity 24,809 70,749
Total liabilities and stockholders' equity $47,202 $162,546
Beginning-of-Year Balances
Total assets $47,453 $187,382
Total stockholders' equity 19,262 72,100
Current liabilities 13,001 66,207
Total liabilities 28,191 108,055
Other Data
Average net receivables $7,537 $3,441
Average inventory 7,684 41,685
Net cash provided by operating activities 6,180 25,686
Capital expenditures 4,992 19,911
Dividends 483 3,561
For each company, compute the following ratios. (Round inventory and receivables turnover to 3 decimal places, e.g. 2.512. Round all other ratios to 1 decimal place, e.g. 5.2. Round free cash flow to 0 decimal places, e.g. 2,550.)
Red Blue
Current ratio _____:1 _____:1
Receivables turnover _____ _____
Average collection period (in days) _____ _____
Inventory turnover _____ _____
Days in inventory _____ _____
Profit margin _____% _____%
Asset turnover _____ _____
Return on assets _____% _____%
Return on common stockholders' equity _____% _____%
Debt to total assets _____% _____%
Times interest earned _____ _____
Current cash debt coverage _____ _____
Cash debt coverage _____ _____
Free cash flow $_____ $_____
Compare the liquidity, solvency and profitability of the two companies and state which is better in each area Red Corporation or Blue Stores, Inc..
Liquidity Red or Blue
Solvency Red or Blue
Profitability Red or Blue
Explanation / Answer
Current Ratio = [Current Assets / Current Liabilities]
Current Ratio = [$15,383 / $13,294]
Current Ratio = 1.16
Current Ratio = [$48,765 / $53,931]
Current Ratio = 0.90
Receivables Turnover of Red = [Sales / Accounts Receivables]
Sales of Red Corporation = $74,431
Average Net Receivables of Red Corporation = $7,537
Receivables Turnover of Red Corporation = [$74,431 / $7,537]
Receivables Turnover of Red Corporation = 9.87 times
Sales of Blue Stores Incorporation = $448,364
Average Net Receivables of Blue Stores Incorporation = $3,441
Receivables Turnover of Blue Stores Incorporation = [$448,364 / $3,441]
Receivables Turnover of Blue Stores Incorporation = 130.30
Average Collection Period (in days) = [365 days / Receivables Turnover]
Average Collection Period (in days) of Red Corporation = [365 / 9.87]
Average Collection Period (in days) of Red Corporation = 36.98
Average Collection Period (in days) of Blue Store Incorporation = [365 / 130.30]
Average Collection Period (in days) of Blue Store Incorporation = 2.80
Inventory Turnover = [Cost of Goods Sold / Average Inventory]
Cost of Goods Sold of Red Corporation = $50,667
Average Inventory of Red Corporation =$7,684
Inventory Turnover = [$50,667 / $7,684]
Inventory Turnover = 6.59 times
Cost of Goods Sold of Blue Store Incorporation = $339,699
Average Inventory of Blue Store Incorporation = $41,685
Inventory Turnover of Blue Store Incorporation = [$339,699 / $41,685]
Inventory Turnover of Blue Store Incorporation = 8.15 times
Days in Inventory = [[365 days / Inventory Turnover]
Days in Inventory of Red Corporation = [365 / 6.59]
Days in Inventory of Red Corporation = 55.38 days
Days in Inventory of Blue Store Incorporation = [365 / 8.15]
Days in Inventory of Blue Store Incorporation = 44.78 days
Profit Margin = [Net Income / Sales]
Net Income of Red Corporation = $3,584
Sales of Red Corporation = $74,431
Profit Margin = [$3,584 / $74,431]
Profit Margin of Red Corporation = 4.82%
Net Income of Blue Store Incorporation = $14,513
Net Sales of Blue Store Incorporation = $448,364
Profit Margin of Blue Store Incorporation = [$14,513 / $448,364]
Profit Margin of Blue Store Incorporation = 3.24%
Asset Turnover = [Sales / Total Assets]
Net Sales of Red Corporation = $74,431
Total Assets of Red Corporation = $47,202
Asset Turnover of Red Corporation = 1.57 times
Net Sales of Blue Store Incorporation = $448,364
Total Assets of Blue Store Incorporation = $162,546
Asset Turnover of Blue Store Incorporation = [$448,364 / $162,546]
Asset Turnover of Blue Store Incorporation = 2.76 times
Return on Assets = [Net Income / Total Assets]
Net Income of Red Corporation = $3,584
Total Assets of Red Corporation = $47,202
Return on Assets of Red Corporation = [$3,584 / $47,202]
Return on Assets of Red Corporation = 7.59%
Net Income of Blue Store Incorporation = $14,513
Total Assets of Blue Store Incorporation = $162,546
Return on Assets of Blue Store Incorporation = [$14,513 / $162,546]
Return on Assets of Blue Store Incorporation = 8.93%
Return on Common Stockholder’s Equity = [Net Income / Total Equity]
Net Income of Red Corporation = $3,584
Common Stockholder’s Equity of Red Corporation = $24,809
Return on Common Stockholder’s Equity of Red = [$3,584 / $24,809]
Return on Common Stockholder’s Equity of Red = 14.45%
Return on Common Stockholder’s of Blue = [$14,513 / $70,749]
Return on Common Stockholder’s of Blue = 20.51%
Debt to Total Assets = [Total Debt / Total Assets]
Total Debt of Red = $22,393
Total Assets of Red = $47,202
Debt to Total Assets = [$22,393 / $47,202]
Debt to Total Assets = 0.47 (or) 47.44%
Total Debt of Blue Store Incorporation = $91,797
Total Assets of Blue Store Incorporation = $162,546
Debt to Total Assets = [$91,797 / $162,546]
Debt to Total Assets = 0.5647 (or) 56.47%
Debt to Total Assets = 56.47%
Times Interest earned ratio = [EBIT / Interest]
EBIT of Red Corporation = $5,355
Interest expenses of Red Corporation = $736
Times Interest earned ratio = [$5,355 / $736]
Times Interest earned ratio = 7.28
EBIT of Blue Store Incorporation = $26,360
Interest expenses of Blue Store Incorporation = $2,326
Times Interest earned ratio = [$26,360 / $2,326]
Times Interest earned ratio = 11.33
Red Corporation
Blue Store Incorporation
1.16
0.9
9.87
130.3
36.98
2.8
6.59
8.15
55.38
44.78
4.82%
3.24%
1.57
2.76
7.59%
8.93%
14.45%
20.51%
47.44%
56.47%
7.28%
11.33%
RatiosRed Corporation
Blue Store Incorporation
Current Ratio1.16
0.9
Receivables Turnover9.87
130.3
Average Collection Period (in days)36.98
2.8
Inventory Turnover6.59
8.15
Days in Inventory55.38
44.78
Profit Margin4.82%
3.24%
Asset Turnover1.57
2.76
Return on Assets7.59%
8.93%
Return on Common Stockholder's Equtiy14.45%
20.51%
Debt to Total Assets47.44%
56.47%
Times Interest earned7.28%
11.33%
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