Question:
Calculate the following 13 ratios for both Company A and Company B. Please show your work clearly, and briefly explain what each ratio means for both companies.
Profit margin
Return on assets
Return on equity
Receivables turnover
Average collection period
Inventory turnover
Fixed asset turnover
Total asset turnover
Current ratio
Quick ratio
Debt to total assets
Times interest earned
Fixed charge coverage
Data:
Company A:
Cash $20,000
Accounts receivable $80,000
Inventory $50,000
Total current assets $150,000
Gross plant and equipment $500,000
Accumulated depreciation $150,000 (input as positive)
Net plant and equipment $350,000
Total assets $500,000
Accounts payable $100,000
Bonds payable (long-term) $80,000
Total liabilities $180,000
Common stock $150,000
Capital paid in excess of par $70,000
Retained earnings $100,000
Total stockholders’ equity $320,000
Total liabilities and stockholders’ equity $500,000
Credit sales $1,250,000
Cost of goods sold $750,000
Gross profit $500,000
Selling and administrative expense $257,000
Depreciation $50,000
Operating profit (EBIT) $193,000
Interest expense $8,000
Earnings before taxes (EBT) $185,000
Taxes $92,500
Earnings after taxes (EAT) $92,500
Lease payments included in S&A exp $7,000
Number of days in year 360
Company B:
Cash $35,000
Marketable securities $7,500
Accounts receivable $70,000
Inventory $75,000
Total current assets $187,500
Gross plant and equipment $500,000
Accumulated depreciation $250,000 (input as positive)
Net plant and equipment $250,000
Total assets $437,500
Accounts payable $75,000
Bonds payable (long-term) $210,000
Total liabilities $285,000
Common stock $75,000
Capital paid in excess of par $30,000
Retained earnings $47,500
Total stockholders’ equity $152,500
Total liabilities and stockholders’ equity $437,500
Credit sales $1,000,000
Cost of goods sold $600,000
Gross profit $400,000
Selling and administrative expense $224,000
Depreciation 50,000
Operating profit (EBIT) $126,000
Interest expense $21,000
Earnings before taxes (EBT) $105,000
Taxes $52,500
Earnings after taxes (EAT) $52,500
Lease payments included in S&A exp $7,000
