Question

# Required information Problem 17-5A Comparative ratio analysis LO A1, P3 [The following information applies to the...

Required information

Problem 17-5A Comparative ratio analysis LO A1, 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 \$ 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.

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