Question: BMFS 152 RATIO ANALYSIS (STATEMENT ANALYSIS) Summer 2023 Assume the role of a banker and you have funds to lend to only one company. You
BMFS 152
RATIO ANALYSIS (STATEMENT ANALYSIS)
Summer 2023
Assume the role of a banker and you have funds to lend to only one company. You have narrowed your choices to a company in the air conditioning & heating business - either Reitzel Heating or Klassen. You are given the following financial data for both companies on the following page.
For each company calculate the following (3 pts):
- Current Ratio
- Acid test ratio
- Inventory turnover
- Days' sales in average receivable
- Debt ratio
- Times interest earned ratio
- Return on shareholders' equity
- Earnings per share of common stock
- Price Earnings Ratio
- Debt to Equity Ratio
Required:
1. Prepare executive summary explaining which company you would loan the funds to. Justify your answer using the ratios that you calculated. (6 pts)
2. Would you consider becoming an equity holder for either company? Why or why not? (6 pts)
|
Selected income statement date for current year: | ||
Reitizel | Klassen | |
Net Sales (all on credit) | 388,000 | 502,000 |
Cost of Goods sold | 215,000 | 263,000 |
Income from Operations | 82,000 | 145,000 |
Interest expense | 19,000 | |
Net Income | 54,000 | 78,000 |
Selected balance sheet data at the beginningof the current year: | ||
Reitizel | Klassen | |
Current Receivables, net | 44,000 | 56,000 |
Inventories | 97,000 | 96,000 |
Total assets | 259,000 | 270,000 |
Preferred shares, $10.00 (2000 shares) | 20,000 | |
Common Shares (10,000 shares) | 10,000 | |
(6000 shares) | 12,500 | |
Total Shareholder's Equity | 126,000 | 133,000 |
Selected balance sheet data at the end of the current year: | ||
Reitizel | Klassen | |
Current Assets: | ||
Cash | 25,000 | 21,000 |
Temporary Investments | 22,000 | 16,000 |
Current receivables, net | 42,000 | 46,000 |
Inventories | 84,000 | 97,000 |
Prepaid Expenses | 2,000 | 3,000 |
Total Current Assets | 175,000 | 183,000 |
Total Assets | 273,000 | 326,000 |
Total Current Liabilities | 107,000 | 94,000 |
Total Liabilities | 107,000 | 144,000 |
Preferred shares, $10.00 (2000 shares) | 20,000 | |
Common Shares (10,000 shares) | 10,000 | |
(6000 shares) | 12,500 | |
Total Shareholder's Equity | 166,000 | 182,000 |
Market price per share of common stock | 48 | 110 |
REITZEL | KLASSEN | |
| CURRENT RATIO | ||
| ACID TEST RATIO | ||
| INVENTORY TURNOVER RATIO | ||
| DAYS' SALES IN AVERAGE RECEIVABLES | ||
| DEBT RATIO | ||
| TIMES INTEREST EARNED RATIO | ||
| RETURN ON SHAREHOLDER'S EQUITY | ||
| EARNINGS PER SHARE OF COMMON STOCK | ||
| Price/Earning Ratio | ||
| Debit to Equity Ratio |
EXECUTIVE SUMMARY
EQUITY HOLDER - WHY OR WHY NOT?
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts