Agnes Ball is considering an investment in the common stock

Agnes Ball is considering an investment in the common stock of a chain of retail department stores. She has narrowed her choice to two retail companies. Fast Corporation and Style Corporation, whose income statement and balance sheets are presented on the next page.

During the year, Fast Corporation paid a total of $50,000 in dividends. The market price pre share of its stock is currently $60. In comparison, Style Corporation paid a total of $114,000 in dividends, and the current market price of its stock is $76 per share. Fast Corporation had net cash flows from operations of $271,500 and net capital expenditure of $625,000. Style Corporation had net cash flows operations of $492,500 and net capital expenditures of $1,050,000. Information for prior years is not readily available. Assume that all notes payable are current liabilities and all bonds payable are long-term liabilities and all bonds payable are long-term liabilities and that there is no change in inventory.


Agnes Ball is considering an investment in the common stock



Agnes Ball is considering an investment in the common stock


Required
Conduct a comprehensive ratio analysis for each company, using the available information. Compare the result. Round percentages and ratios to one decimal place, and consider changes of 0.1 or less to be indeterminate.
1. Prepare a liquidity analysis by calculating for each company the
(a) Current ratio,
(b) Quick ratio,
(c) Receivable turnover,
(d) Day's sales uncollected,
(e) Inventory turnover,
(f) Days' inventory on hand,
(g) Payables turnover and
(h) Day's payable.
2. Prepare a profitability analysis by calculating for each company the
(a) Profit margin,
(b) Asset turnover,
(c) Return on assets, and
(d) Return on equity.
3. Prepare a long-term solvency analysis by calculating for each company the
(a) Debt to equity,
(b) Interest coverage ratio.
4. Prepare a cash flow adequacy analysis by calculating for each company the
(a) Cash flow yield,
(b) Cash flows to sales,
(c) Cash flows to assets, and
(d) Free cash flow.
5. Prepare an analysis of market strength by calculating for each company the
(a) Price/Earning (P/E) ratio and
(b) Dividend yields.
6. Compare the two companies by inserting the ratio calculations from 1 through 5 in a table with the following column headings: Ratio Name, Fast, Style, and Company with More Favorable Ratio. Indicate in the last column which company had the more favorable ratio in each case.
7. How could the analysis be improved if information about these companies' prior years wereavailable?

Solvency
Solvency means the ability of a business to fulfill its non-current financial liabilities. Often you have heard that the company X went insolvent, this means that the company X is no longer able to settle its noncurrent financial...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...