# Question

Summary information from the financial statements of two companies competing in the same industry follows.

Required

1. For both companies compute the

(a) Current ratio,

(b) Acid-test ratio,

(c) Accounts (including notes) receivable turnover,

(d) Inventory turnover,

(e) Days’ sales in inventory,

(f) Days’ sales uncollected. Identify the company you consider to be the better short-term credit risk and explain why.

Round to one decimal place.

2. For both companies compute the

(a) Profit margin ratio,

(b) Total asset turnover,

(c) Return on total assets,

(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

(f) Dividend yields.

Round to one decimal place. Identify which company’s stock you would recommend as the better investment and explain why.

Required

1. For both companies compute the

(a) Current ratio,

(b) Acid-test ratio,

(c) Accounts (including notes) receivable turnover,

(d) Inventory turnover,

(e) Days’ sales in inventory,

(f) Days’ sales uncollected. Identify the company you consider to be the better short-term credit risk and explain why.

Round to one decimal place.

2. For both companies compute the

(a) Profit margin ratio,

(b) Total asset turnover,

(c) Return on total assets,

(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

(f) Dividend yields.

Round to one decimal place. Identify which company’s stock you would recommend as the better investment and explain why.

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