Problem $13-5$A

Comparative ratio analysis

Summary information from the financial statements of two companies competing in the same industry follows. P$3$

Required

Check $(1)$ Kyan: Accounts receivable turnover, $14\mathrm{.}8$; Inventory turnover, $5\mathrm{.}3$

$(2)$ Barco: Profit margin,

$21\mathrm{.}1\%$; PE$,16\mathrm{.}6$

For both companies compute the $($a$)$ current ratio, $(b)$ acid$-$test ratio, $($c$)$ accounts receivable turnover, $(d)$ inventory turnover, $(e)$ days' sales in inventory, and $(f)$ days' sales uncollected. Round to one decimal place. Identify the company you consider to be the better short$-$term credit risk and explain why.

For both companies compute the $($a$)$ profit margin ratio, $($b$)$ total asset turnover, $($c$)$ return on total assets, and $(d)$ return on equity. Assuming that each company's stock can be purchased at $$75$ per share, compute their $(e)$ price$-$earnings ratios and $(f)$ dividend yields. Round to one decimal place. Identify which company's stock you would recommend as the better investment and explain why.