Question

Problem 13-5A Comparative ratio analysis LO P3 [The following information applies to the questions displayed below.]...

Problem 13-5A Comparative ratio analysis LO P3

[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
Company
Kyan
Company
Barco
Company
Kyan
Company
Data from the current year-end balance sheets Data from the current year’s income statement
Assets Sales $ 770,000 $ 890,200
Cash $ 19,500 $ 32,000 Cost of goods sold 590,100 642,500
Accounts receivable, net 36,400 51,400 Interest expense 9,300 17,000
Merchandise inventory 84,840 134,500 Income tax expense 14,800 24,576
Prepaid expenses 5,300 7,450 Net income 155,800 206,124
Plant assets, net 320,000 309,400 Basic earnings per share 4.33 5.00
Total assets $ 466,040 $ 534,750 Cash dividends per share 3.77 3.95
Liabilities and Equity Beginning-of-year balance sheet data
Current liabilities $ 60,340 $ 92,300 Accounts receivable, net $ 27,800 $ 58,200
Long-term notes payable 80,800 101,000 Merchandise inventory 55,600 109,400
Common stock, $5 par value 180,000 206,000 Total assets 458,000 412,500
Retained earnings 144,900 135,450 Common stock, $5 par value 180,000 206,000
Total liabilities and equity $ 466,040 $ 534,750 Retained earnings 124,820 92,066

Problem 13-5A Part 2

2a. 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’s stock can be purchased at $75 per share, compute their (e) price-earnings ratios and (f) 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.

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