Required information [The following information applies to the questions display

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Required information [The following information applies to the questions displayed below.] Summary information from the financial statements of two companies competing in the same industry follows. Barco Kyan Barco Kyan Company Company Company Company Data from the current year's income statement Sales Data from the current year-end balance sheets Assets Cash Accounts receivable, net Current notes receivable (trade) Merchandise inventory Prepaid expenses Plant assets, net Totalassets 84000 600Sa 84,440 138,500 Net income $790,000 $880,200 90,100 648,500 8,900 11,000 15,18524,300 175,815 196,400 35 4.01 $ 22,000 $ 31,000 Cost of goods sold 33,400 60,400 Interest expense 10,000 8,600 Income tax expense 6,200 7,850 Basic earnings per share 20,000310,400 Cash dividends per share 5.49 3.73 $476,040 $556,750 Beginning-of-year balance sheet data Accounts receivable, net Liabilities and Equity Current liabilities Long-term notes payable Common stock, $5 par value Retained earnings Total liabilities and equity 25,800 52,200 65,340 $103,300 Current notes receivable (trade) 79,800107,000 Merchandise inventory 160,000 226,000 Total assets 170,900 120,450 Common stock, $5 par value 65,600 115,400 448,000 402,500 160,000 226,000 114,445 105,302 $476,040 $556,750 Retained earnings 2a. For both companies compute the (a) profit margin ratio, (b) total asset turnover, (c return on total assets, and (a) return on common stockholders' equity. Assuming that share and each company's stock can be purchased at $95 per share, compute their (e) price- earnings ratios and ( 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.

Explanation / Answer

Answer to Part a:

Profit Margin = Net Income / Sales * 100

Barco Company:
Profit Margin = 175,815 / 790,000 * 100
Profit Margin = 22.26%

Kyan Company:
Profit Margin = 196,400 / 880,200 * 100
Profit Margin = 22.31%

Answer to Part b:

Total Assets Turnover = Sales / Average Total Assets

Barco Company:
Average Total Assets = (476,040 + 448,000) / 2
Average Total Assets = $462,020

Total Assets Turnover = 790,000 / 462,020
Total Assets Turnover = 1.71 times

Kyan Company:
Average Total Assets = (556,750 + 402,500) / 2
Average Total Assets = $479,625

Total Assets Turnover = 880,200 / 479,625
Total Assets Turnover = 1.84 times

Answer to Part c:

Return on Total Assets = Net Income / Average Total Assets * 100

Barco Company:
Average Total Assets = (476,040 + 448,000) / 2
Average Total Assets = $462,020

Return on Total Assets = 175,815 / 462,020 * 100
Return on Total Assets = 38.05%

Kyan Company:
Average Total Assets = (556,750 + 402,500) / 2
Average Total Assets = $479,625

Return on Total Assets = 196,400 / 479,625 * 100
Return on Total Assets = 40.95%

Answer to Part d:

Return on Common Stockholders’ Equity = Net Income / Average Stockholders’ Equity * 100

Barco Company:
Average Stockholders’ Equity = [(160,000 + 170,900) + $160,000] / 2
Average Stockholders’ Equity = $245,450

Return on Common Stockholders’ Equity = 175,815 / 245,450 * 100
Return on Common Stockholders’ Equity = 71.63%

Kyan Company:
Average Stockholders’ Equity = [($226,000 + $120,450) + $226,000] / 2
Average Stockholders’ Equity = $286,225

Return on Common Stockholders’ Equity = 196,400 / 286,225 * 100
Return on Common Stockholders’ Equity = 68.62%

Answer to Part e:

Price-Earnings Ratio = Price per Share / Earning per Share

Barco Company:
Price-Earnings Ratio = 95 / 5.49
Price-Earnings Ratio = 17.30 times

Kyan Company:
Price-Earnings Ratio = 95 / 4.35
Price-Earnings Ratio = 21.84 times

Answer to Part f:

Dividend Yield Ratio = Dividend/ Price per Share * 100

Barco Company:
Dividend Yield Ratio = 3.73 / 95 * 100
Dividend Yield Ratio = 3.93%

Kyan Company:
Dividend Yield Ratio = 4.01 / 95 * 100
Dividend Yield Ratio = 4.22%

As per my recommendation, stock of Kyan Company is better investment, as it has higher Profit Margin Ratio, Total Assets Turnover and other Rations.

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