Summary information from the financial statements of two companies competing in
ID: 2474896 • Letter: S
Question
Summary information from the financial statements of two companies competing in the same industry follows Fargo Company Compay Ball Ball Data from the current year-end balance sheets Assets Cash Accounts receivable, nec Current notes recevable (trade) Data from the current year's income statement Sales 20.000 $36.500Cost of goods sold 77.100 70.500 Incerest expene 1 1,600 66.800 82.000 Net income 9.700 393.600 $667.500 290600.000 12.300 5,700 12.300 33.850 61,700 2.19 5,900 9.000 Income tax expense Prepaid expenses Pant assets, nec.... Total assets 127 61.700 382 100 640 $382 100 $460.400 Beginning-of-year balance sheet daca Accounts receivabie, net Liabilicies and Equity Current lablres Long-term nocet payable Common stock, $5 par value Retained eamings Total labiroes and equty s 72200 $ 73.300 90500 $ 97000 Current notes recevable (trade) 93.00093300 Merchandise inventory 33.000 141,000 Toal assets 65.600 129,100 Common stock $S par value 05.100 80.500 383.400 443,000 133.000 141,000 49.100 109,700 382 100$460 400 Retaned earning Required 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 () days' sales uncollected. Identify the company you consider to be the better short-term credit risk and explain why. Round to one decimal place. 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 $1.50 per share and each company's stock can be purchased at $25 per share, compute their (e) price-earnings ratios and () dividend yields. Round to one decimal place; for part b, round to two decimals. Identify which company's stock you would recommend as the better investment and explain why 2.Explanation / Answer
Ratios fargo company Ball company
Current ratio = Current assets / current liabilities 205200 / 90500 208100 / 97000
= 2.27 = 2.15
Acid test ratio = current assets - inventory -
prepaid expenses / current liabilities = 205200 - 86800 - 9700/ = 208100 - 82000 - 10100 /
90500 97000
= 1.2 = 1.2
Accounts receivable turnover =
Credit sales / average accounts receivables = 393600 / 72200 + 88700 /2 = 667500 / 73300 + 79500/2
= 393600 / 80450 = 667500 / 76400
= 4.89 = 8.74
Days sales uncollected = 365 / 4.89 = 365 / 8.74
= 75 days = 42 days
Inventory turnover ratio = COGS / Average
inventory = 290600/ 105100+86800/2 = 480000 / 80500 +82000 / 2
= 290600 / 95950 = 480000 / 81250
= 3.03 = 5.91
Days in sales inventory = 365 / 3.03 = 365 / 5.91
= 120 days = 62 days
Profit margin = net income / net sales = 33850 / 393600 = 61700 / 667500
= 8.6% = 9.2%
Total assets turnover = net sales /
average total assets = 393600 / 383400 + = 667500 / 443000 + 460400 / 2
382100 / 2 = 667500 / 451700
= 393600 / 382750 = 1.48
Return on assets = net income /
average total assets = 33850 / 382750 = 61700 / 451700
= 8.84% = 13.66%
price earnings ratio = MPS / EPS = 25 / 1.27 = 25 / 2.19
= 19.69 = 11.42.
= 1.02
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.