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Problem 17-5A Comparative ratio analysis LO A1, P3

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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	$	800,000		$	912,200
Cash	$	18,000		$	34,000			Cost of goods sold		596,100			650,500
Accounts receivable, net		37,400			56,400			Interest expense		7,700			17,000
Current notes receivable (trade)		9,500			7,400			Income tax expense		15,377			25,183
Merchandise inventory		84,540			138,500			Net income		180,823			219,517
Prepaid expenses		5,800			7,150			Basic earnings per share		5.32			4.46
Plant assets, net		350,000			304,400			Cash dividends per share		3.81			3.92
Total assets	$	505,240		$	547,850
								Beginning-of-year balance sheet data
Liabilities and Equity								Accounts receivable, net	$	31,800		$	53,200
Current liabilities	$	71,340		$	93,300			Current notes receivable (trade)		0			0
Long-term notes payable		85,800			99,000			Merchandise inventory		63,600			117,400
Common stock, $5 par value		170,000			246,000			Total assets		428,000			412,500
Retained earnings		178,100			109,550			Common stock, $5 par value		170,000			246,000
Total liabilities and equity	$	505,240		$	547,850			Retained earnings		126,817			82,897

Problem 17-5 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 share and each company’s stock can be purchased at $105 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.

For both companies compute the profit margin ratio.

(a)	Profit Margin Ratio
Company	Choose Numerator:	/	Choose Denominator:	=	Profit margin ratio
		/		=	Profit margin ratio
Barco		/		=	0	%
Kyan		/		=	0	%

For both companies compute the total asset turnover

(b)	Total Asset Turnover
Company	Choose Numerator:	/	Choose Denominator:	=	Total Asset Turnover
		/		=	Total asset turnover
Barco		/		=	0	times
Kyan		/		=	0	times

For both companies compute the return on total assets.

(c)	Return on Total Assets
Company	Choose Numerator:	/	Choose Denominator:	=	Return on Total Assets
		/		=	Return on total assets
Barco		/		=	0	%
Kyan		/		=	0	%

For both companies compute the return on common stockholders’ equity.

(d)	Return On Common Stockholders' Equity
Company	Choose Numerator:			/	Choose Denominator	=	Return On Common Stockholders' Equity
		-		/		=	Return On common stockholders' equity
Barco		-		/		=	0	%
Kyan		-		/		=	0	%

Assuming that share and each company’s stock can be purchased at $105 per share, compute their price-earnings ratios.

(e)	Price-Earnings Ratio
Company	Choose Numerator:	/	Choose Denominator:	=	Price-Earnings Ratio
		/		=	Price-earnings ratio
Barco		/		=	0	times
Kyan		/		=	0	times

Assuming that share and each company’s stock can be purchased at $75 per share, compute their dividend yields.

(f)	Dividend Yield
Company	Choose Numerator:	/	Choose Denominator:	=	Dividend Yield
		/		=	Dividend yield
Barco		/		=	0	%
Kyan		/		=	0	%

Identify which company’s stock you would recommend as the better investment.

The better investment

Answer 1