ABC Company and XYZ Company are competitors in the manufacturing industry. The following ratios and financial information
Question:
Required
(a) Compare and evaluate the strengths and weaknesses of ABC and XYZ Companies.
(b) Calculate the price-to-earnings (PIE) ratios for both firms. Explain what a P IE ratio tells an analyst. What could be the cause of the difference between ABC's and XYZ's PIEratios?
Financial ratios ABC XYZ Liquidity Current (times) Quick (times) Cash flow liquidity (times) Cash flow from operations (in millions of S) Activity Accounts receivable turnover (times) Inventory turnover (times) Payables turnover (times) Fixed asset turnover (times) Total asset turnover (times) 0.92 0.61 0.35 995 1.51 1.20 0.85 2,520 5.48 4.75 2.82 2.49 1.10 6.20 4.00 3.55 3.62 1.10 Leverage Debt ratio (%) Times interest earned (times) Cash interest coverage (times) Cash flow adequacy (times) Profitability 76.02 12.31 9.89 0.43 51.21 17.28 30.19 1.35 Gross profit margin (%) Operating profit margin(%) Net profit margin (%) Cash flow margin (%) Return on assets (%) Return on equity (%) Cash return on assets (%) Earnings per share Closing stock price 43.08 16.23 11.26 6.98 9.77 40.86 6.87 4.59 43.11 8.84 4.80 12.59 4.63 10.23 12.54 1.19 $41 per share $35 per share
Step by Step Answer:
a XYZ is more liquid than ABC XYZs current and quick ratios are both above one and the cashflow liqu...View the full answer
Understanding financial statements
ISBN: 978-0136086246
9th Edition
Authors: Lyn M. Fraser, Aileen Ormiston
Related Video
Inventory turnover is a key metric that helps businesses evaluate the efficiency of their operations. A high turnover ratio is generally considered positive, indicating that the company is effectively selling its inventory and making efficient use of its resources. On the other hand, a low turnover ratio may indicate issues such as overstocking or slow sales and may require further examination to identify and address the underlying causes. Businesses use this ratio to make decisions about inventory levels, production schedules, and pricing strategies. It also helps businesses to identify areas where they may need to make improvements, such as reducing lead times for production or optimizing sales and marketing efforts. Additionally, inventory turnover is used by investors and analysts as a key performance indicator to evaluate the financial health and growth potential of a company.
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