Longhorn Company P2-4A Compute ratios; comment on relative profitability, liquid

Question

Longhorn Company P2-4A Compute ratios; comment on relative profitability, liquidity, and solvency (LO 2), AN Comparative financial statement data for Loeb Corporation and Bowsh Corporation. appear below. All balance sheet data are as of December 31, 2017 two competitors, Loeb Corporation Bowsh Corporation 2017 $1,800,000 $620,00o 1,175,000 340,000 283,000 9,000 85,000 407,200 532,000 66,325 108,500 138,000 90,000 36,000 2017 Net sales Cost of goods sold Operating expenses Interest expense Income tax expense Current assets Plant assets (net) 98,000 3,800 36,000 190,336 139,728 33,716 40,684 36,000 20,000 15,000 50,000 Current liabilities Long-term liabilities Net cash provided by operating activities Capital expenditures Dividends paid on common stock Weighted-average number of shares outstanding 80,000 Instructions (a) Comment on the relative profitability of the companies by computing the net income and earnings per share for each company for 2017. (b) Comment on the relative liquidity of the companies by computing working capital and the current ratio for each company for 2017. (c) Comment on the relative solvency of the companies by computing the debt to assets ratio and the free cash flow for each company for 2017

Explanation / Answer

Calcualtion of EPS -

(b) Working Capital = Current assets - Current liabilites

Current Ratio = Current assets / Current libilites

(c) Debt to assets ratio = Total Debt/ Total Assets

Free Cash flow = net cash provided by operating activities + Capital expenditure - Dividend paid on common stock

Loeb= 138000-90000-36000

= 12000

Bowsh = 36000-20000-15000

= 1000

Please comment in case of further clarification.

Loeb Bowsh Net sale 1800000 620000 less COGS 1175000 340000 Gross Margin 625000 280000 less Operating expense 283000 98000 EBIT 342000 182000 less Interest expense 9000 3800 EBT 333000 178200 less Income tax expense 85000 36000 EAT 248000 142200 less Preferred div. 0 0 Earnings available to ESH 248000 142200 No. of outstanding shares 80000 50000 EPS 3.1 2.844

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