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Problem $13-5$A $($Algo$)$ Comparative ratio analysis LO P$3$

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

Barco Company Kyan Company Barco Company Kyan Company

Data from the current year$-$end balance sheets Data from the current year$$s income statement

Assets Sales $ $780,000$ $ $922,200$

Cash $ $20,500$ $ $31,000$ Cost of goods sold $585,100636,500$

Accounts receivable, net $33,40057,400$ Interest expense $7,90015,000$

Merchandise inventory $84,640132,500$ Income tax expense $14,99225,459$

Prepaid expenses $6,0007,450$ Net income $172,008245,241$

Plant assets, net $320,000310,400$ Basic earnings per share $4\mathrm{.}785\mathrm{.}20$

Total assets $ $464,540$ $ $538,750$ Cash dividends per share $3\mathrm{.}773\mathrm{.}96$

Liabilities and Equity Beginning$-$of$-$year balance sheet data

Current liabilities $ $70,340$ $ $90,300$ Accounts receivable, net $ $26,800$ $ $57,200$

Long$-$term notes payable $84,800103,000$ Merchandise inventory $59,600117,400$

Common stock, $$5$ par value $180,000236,000$ Total assets $448,000382,500$

Retained earnings $129,400109,450$ Common stock, $$5$ par value $180,000236,000$

Total liabilities and equity $ $464,540$ $ $538,750$ Retained earnings $93,11251,121$

Problem $13-5$A $($Algo$)$ Part $1$

Required:

$1$a$.$ 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.

Note: Do not round intermediate calculations.

$1$b$.$ Identify the company you consider to be the better short$-$term credit risk.

$2$a$.$ 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$$s stock can be purchased at $$85$ per share, compute their

$($e$)$ price$-$earnings ratios and

$($f$)$ dividend yields.

$2$b$.$ Identify which company$$s stock you would recommend as the better investment.