Two companies competing in the same industry are being evaluated by a bank that can lend money to only one of them.

Summary information from the financial statements of the two companies follows:

Data from the current year-end balance sheet

Alpha Beta

Assets:

Cash $ 18,500 $ 33,000

Accounts receivable, net 36,400 56,400

Notes receivable (trade) 8,100 6,200

Merchandize inventory 83,440 131,500

Prepaid expenses 4,000 5,950

Plant and equipment, net 284,000 303,400

Total assets $434,440 $536,450

Liabilities and Equity:

Current liabilities $ 60,340 $ 92,300

Long-term notes payable 79,800 100,000

Common stock, $5 par value 175,000 205,000

Retained earnings 119,300 139,150

Liabilities and Equity $434,440 $536,450

Data from the current years income statement

Alpha Beta

Sales $ 660,000 $ 780,200

Cost of goods sold 485,100 532,500

Interest expense 6,900 11,000

Income tax expense 12,800 19,300

Net income 67,770 105,000

Basic earnings per share 1.94 2.56

Beginning of the year data:

Accounts receivable, net $ 28,800 $ 53,200

Notes receivable (trade) 0 0

Merchandize inventory 54,600 106,400

Total assets 388,000 372,500

Common stock, $5 par value 175,000 205,000

Retained earnings 94,300 90,600

Note: Portion of the earnings not paid out as dividends are retained by the two companies

Required:

a. Assuming you have been appointed by the bank to advise on which of the companies to lend money. You are to recommend to the bank based on short-term solvency and asset management ratios of the two companies