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:

Required:
a. Compute the current ratio, acid-test ratio, accounts receivable turnover, inventory turnover, days’ sales in inventory, and days’ sales in receivables for both companies. Identify the company that you consider to be the better short-term credit risk and explain why.
b. Compute the net profit margin, total asset turnover, return on total assets, and return on common stockholders’ equity for both companies. Assuming that each company paid cash dividends of $1.50 per share and each company’s stock can be purchased at $25 per share, compute their price-earnings ratios and dividend yields.
Identify which company’s stock you would recommend as the better investment and explainwhy.

Datatech Sigma Company Company Datatech Sigma Company Company Data from the current year-end balance sheet: Assets Cash Accounts receivable, net Notes receivable (trade) Merchandise inventory Prepaid expenses Plant and equipment, net Total assets Data from the current year's income statement: Sales $660,000 $780,200 485,100 532,500 6,900 11,000 2,800 19,300 67,770 105,000 2.56 $ 18,500 $33,000 Cost of goods sold 36,400 56,400 Interest expense 8,1006,200 Income tax expense 83,440 131,500 Net income 1.94 4,0005,950 284,000 303,400 $434,440 $536,450 Basic earnings per share Datatech Sigma Company Company Datatech Sigma Company Company Liabilities and Stockholders' Equity Current liabilities Long-term notes payable Common stock, $5 par value.. 175,000 205,000 Retained earnings Total liabilities and equity .$434,440 $536,450 Retained eamings Beginning-of-year data: Accounts receivable, net Notes receivable (trade Merchandise inventory Total assets $ 28,800 53,200 60,340 92,300 79,800 100,000 54,600 106,400 388,000 372,500 par value 175,000 205,000 94,300 90.600 19,300 139,150 Common stock, $5