The financial statements for Royale and Cavalier companies are summarized here R

Question

The financial statements for Royale and Cavalier companies are summarized here Royale Company Cavalier Company Balance Sheet Cash Accounts Receivable, Net Inventory Equipment, Net Other Assets $ 24,000 54,000 108,000 548,000 139,000 $ 44,000 15,000 23,000 158,000 45,000 Total Assets $873,000 $285,000 $13,000 53,000 209,000 3,000 7,000 Current Liabilities $118,000 Note Payable (long-term) Common Stock (par $20) Additional Paid-in Capital Retained Earnings 188,000 479,000 49,000 39,000 Total Liabilities and Stockholders' Equity $873,000 $285,000 Income Statement Sales Revenue Cost of Goods Sold Other Expenses $797,000 479,000 239,000 $277,000 149,000 94,000 Net Income $79,000 $ 34,000 Other Data Per share price at end of year Selected Data from Previous Year Accounts Receivable, Net Note Payable (long-term) Equipment, Net Inventory Total Stockholders' Equity $ 20.00 $12.00 $ 46,000 188,000 548,000 94,000 567,000 $13,000 53,000 158,000 37,000 219,000 These two companies are in the same business and state but different cities. Each company has been in operation for about 10 years. Both companies received an unqualified audit opinion on the financial statements. Royale Company wants to borrow $74,000 cash and Cavalier Company is asking for $29,000 The loans will be for a two-year period. Both companies estimate bad debts based on an aging analysis, but Cavalier has estimated slightly higher uncollectible rates than Royale. Neither company issued stock in the current year. Assume the end-of-year total assets and net equipment balances approximate the years average and all sales are on account.

Explanation / Answer

Royale Cavalier Formula Net profit margin 9.91% 12.27% Net income/Sales Gross Profit percentage 39.90% 46.21% (1-Cost of goods sold/Sales) Fixed Asset turnover 1.45 1.75 Net sales/Total fixed assets Return on equity 13.90% 15.56% Net income/Total Equity Earning per share 3.3 4.09 Net income/(No. of Share*) Price/Earning ratio 6.06 2.93 Price per share/Earning per share Receivables turnover 17.33 21.31 Sales/Average receivables Days to collect 21.06 17.13 365/Receivables turnover Inventory turnover 5.096 4.027 Cost of goods sold/Inventory Days to sell           71.62      90.64 365/Inventory turnover Current ratio 1.58 6.31 (Cash+Account receivables+Inventory)/Current Liabilites Debt to Assets 0.156 0.232 Total debt/Total Assets * No. of Share= Common Stock/Par value

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